Know your network
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Who’s who, stability and privacy
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With the aim of quantifying the systemic banking risk created by the use of poorly designed or insufficiently secure networks, SC60 sets out a number of core criteria for the measurement and management of digital asset network risk. For the first time in global regulation, the characteristics of the digital asset network are directly linked to banking balance sheet requirements.
These criteria focus on a number of core network risks:
Managed badly, each of these risks could end up creating systemic risk amongst the banking sector. Can market participants and their transactions be managed safely and without disruption? Can banks’ existing commitments to privacy and anti-money laundering be met with confidence?
If applied today, SC60 would have a shock effect on the digital asset industry, with up to 69% of firms’ digital assets requiring provisions of 1250% in RWA as a result of their network designs.
This means that banks and their counterparties need to take an urgent look at many of the foundational, design principles of their digital asset networks – if they are to avoid punitive regulatory capital requirements. Today, more than 50% of respondents would fail to satisfy SC60 Group 1 criteria on the regulatory status and competence of their network’s participants; on the privacy and confidentiality of their transactions on-chain; and on their ability to ensure the stability of their networks.
SC60 provides a uniquely clear framework for the core principles on which a capital efficient, digital asset network needs to be based.
These principles now need to be taken into account by many, so that the banks who today are unable to control and manage key risks in their transaction lifecycles can avoid having to assign a significant financial value to these unmanaged risks from 2025 onwards.
