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Risk Management : Are Crypto Exchanges Safe?

Jay Clayton SEC chairman mentioned in recent news that ICOs will be treated as securities. Crypto exchanges are being placed in increased scrutiny by the regulators.

A good enterprise risk management approach is one that is proactive and not reactive after the damage has occurred. What will set crypto exchanges apart will be the ability to have a robust risk management function setup to their competitive advantage? Below are some of the risks that can pose threats to the crypto exchanges and various mitigation actions that can be taken if there is a strong Enterprise Risk management framework.

1.   Financial risk: If a risk management framework is not established, the volatility in the market can cause losses resulting from the movements in market prices and liquidity. 

For eg: changes in interest rate, exchange rates, and inflations can affect the business plan cash flows, net monetary assets, and total account receivables. Ongoing calculation of such exposures helps reduce the likelihood of failures.

2.    Customer and Third party risk: It becomes really important to know the customer/counterparty you are transacting with or conducting the business. Not thoroughly knowing your customers can lead a firm to be associated with a high-risk counterparty who is on the sanctions list ultimately causing a lot of reputation damage. Additionally, it is also important to monitor the credit exposures and to gauge the ability of the clients being able to meet the financial obligations.

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Breana Patel

Breana Patel

CEO | Thought leader in Bank Risk & Regulations

Bonova Advisory | Risk &Regulatory Advisory

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