BIS Warns of Systemic Risks as Crypto Exchanges Evolve into 'Shadow Banks'

On April 23, 2026, the Bank for International Settlements (BIS) issued a strong warning that major crypto-asset exchanges have evolved into 'shadow banks,' performing core banking functions without traditional financial safeguards such as capital buffers or deposit insurance. Through a report, the BIS Financial Stability Institute (FSI) analyzed the risks that the rapid growth and lack of regulation of these institutions pose to the overall financial system.

The BIS now defines crypto exchanges not merely as trading platforms but as 'Multi-function Crypto-asset Intermediaries (MCIs),' noting that they offer a combination of yield products and lending services. While these institutions are expanding their market influence and mimicking the roles of traditional financial institutions, they are not subject to corresponding oversight.

These institutions essentially operate by taking deposits and reinvesting them into risky activities, yet they lack the capital buffers or deposit insurance held by traditional banks. This means there is no last line of defense to protect customer assets when market instability increases.

From the customer's perspective, these products are generally unsecured claims on the intermediary, and the platform is reinvesting them into risky activities. This is equivalent to taking deposits without the safeguards that make traditional banking stable.

In particular, 'Earn' and 'asset management' products attract funds by promising high yields, but they contain systemic vulnerabilities that threaten financial stability. The BIS pointed out structures where these activities lead to leveraged investments without transparent disclosure, urging caution for users.

Analysis of Structural Financial Risks

The BIS report defines three core financial risks to which crypto-asset intermediaries are exposed, emphasizing the urgent need for a regulatory approach to manage them. These risks tend to be further amplified in the absence of adequate capital requirements or liquidity management guidelines.

• ['Credit risk due to unsecured lending and counterparty risk', 'Liquidity risk arising from liquidity mismatches between assets and liabilities', 'Maturity transformation risk from using short-term liabilities to invest in long-term or illiquid assets']

The crypto-asset sector lacks strict capital and liquidity requirements like Basel III, which can lead to an immediate crisis when market volatility occurs. Unlike traditional banks, crypto exchanges often rely solely on their own risk management standards, making them vulnerable to external shocks.

Citing the 2022 collapse of Celsius as an example, the BIS recalled the devastating consequences that 'shadow banking' activities can have in the absence of safeguards. The event clearly demonstrated how the insolvency of an intermediary can lead to the total loss of user assets, a warning that applies equally to current MCIs.

As an alternative, the BIS proposed a combination of 'entity-based' regulation, which oversees the entire firm, and 'activity-based' regulation, which regulates individual financial activities. This is a comprehensive attempt to ensure the financial soundness of exchanges, including strengthening governance and introducing stress tests.

As of April 2026, global regulatory implementation remains fragmented, causing exchanges to flee to jurisdictions with weaker regulations. Even the recommendations previously presented by the Financial Stability Board (FSB) are assessed to have varying levels of implementation by country, leaving systemic vulnerabilities intact.

In the future, crypto exchanges will be required to provide transparency and security on par with institutional finance, signaling a major restructuring of the industry. It is projected that existing high-yield products not backed by insurance or collateral will gradually disappear, reorganizing into safer and more transparent financial services.