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Conceptualizing an Institutional Framework to Mitigate Crypto-Assets’ Operational Risk

Author

Listed:
  • Deepankar Roy

    (Department of Information Technology, National Institute of Bank Management, Pune 411048, India)

  • Ashutosh Dubey

    (National Payments Corporation of India, Mumbai 400051, India)

  • Daitri Tiwary

    (Birla Institute of Management Technology, Greater Noida 201306, India)

Abstract

Extent ecosystems of crypto financial assets (crypto-assets) lack parity and coherence across the globe. This asymmetry is further heightened with a knowledge gap in operational risk management, wherein the global landscape of crypto-assets is characterized by unprecedented external risks and internal vulnerabilities. In this study, we present a critical examination and comprehensive analysis of current crypto-asset operational guidelines across geographies. We benchmark these guidelines to the Basel Committee for Banking Supervision (BCBS) risk classification framework for crypto-assets, identifying gaps in the operations across organizations. We, hence, conceptualize a novel institutional framework which may help in understanding and mitigating the gaps in operational risks’ regulation of crypto-assets. Our proposed Crypto-asset Operational Risk Management (CORM) framework determines how operational risk associated with crypto-assets of financial institutions can be mitigated to respond to the increasing demand for crypto-assets, cross border payments, electronic money, and cryptocurrencies, across countries. Applicable to firms irrespective of their size and scale of operations, CORM aligns with global regulatory initiatives, facilitating compliance and fostering trust among stakeholders. Strengthening our argument of CORM’s applicability, we present its efficacy in the form of alternate hypothetical outcomes in two distinct real-life cases wherein crypto-asset exchanges succumbed to either external risks, such as hacking, or internal vulnerabilities. It paves the way for future regulatory response with a structured approach to addressing the unique operational risks associated with crypto-assets. The framework advocates for collaborative efforts among industry stakeholders, ensuring its adaptability to the rapidly evolving crypto landscape. It further contributes to the establishment of a more resilient and regulated financial ecosystem, inclusive of crypto-assets. By implementing CORM, institutions can navigate the complexities of crypto-assets while safeguarding their interests and promoting sustainable growth in the digital asset market.

Suggested Citation

  • Deepankar Roy & Ashutosh Dubey & Daitri Tiwary, 2024. "Conceptualizing an Institutional Framework to Mitigate Crypto-Assets’ Operational Risk," JRFM, MDPI, vol. 17(12), pages 1-31, December.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:12:p:550-:d:1539434
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    References listed on IDEAS

    as
    1. Stephen Chan & Saralees Nadarajah, 2020. "Extreme Values and Financial Risk," JRFM, MDPI, vol. 13(2), pages 1-3, February.
    2. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    3. Dora Almeida & Andreia Dionísio & Isabel Vieira & Paulo Ferreira, 2022. "Uncertainty and Risk in the Cryptocurrency Market," JRFM, MDPI, vol. 15(11), pages 1-17, November.
    Full references (including those not matched with items on IDEAS)

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