In its annual 10-K filing with the US Securities and Exchange Commission (SEC), Bank of America (BofA) made several references to cryptocurrencies as risk factors. This is the first time that BofA has formally documented concerns about virtual currencies.
"Companies generally list the risk factors in order of their importance," according to the SEC. "In practice, this section focuses on the risks themselves, not how the company addresses those risks. Some risks may be true for the entire economy, some may apply only to the company's industry sector or geographic region, and some may be unique to the company."
Virtual currencies would probably be considered a "risk factor" across the entire banking industry, not just for BofA. Under the subsection labeled "Geopolitical," the financial institution outlined its first concern.
"Emerging technologies, such as cryptocurrencies, could limit our ability to track the movement of funds."
This appeared just after BofA explained that its international operations are subject to US laws on foreign corrupt practices, the Office of Foreign Assets Control, KYC requirements, and AML regulations. The bank continued, "Our ability to comply with these laws is dependent on our ability to improve detection and reporting capabilities and reduce variation in control processes and oversight accountability."
The global nature of cryptocurrency investment and speculation, in conjunction with lax identification requirements by some virtual currency exchanges, could make it more difficult and/or more expensive for BofA to follow the money trail. Perhaps, this is part of the reason that BofA began declining credit card purchases of cryptocurrency earlier this month. Nonetheless, at least as of February 5, 2018, Bank of America still allowed debit card purchases of cryptocurrency.
Tracking funds isn't BofA's only concern about virtual currency.
Under the subsection labeled "Other," the bank worried about the "significant and increasing competition in the financial services industry." BofA wrote, "Clients may choose to conduct business with other market participants who engage in business or offer products in areas we deem speculative or risky, such as cryptocurrencies."
Basically, Bank of America is afraid of losing business to risk-taking competitors. Although BofA singled out cryptocurrencies specifically, the bank's unwillingness to enter speculative markets is based on well-founded doubts. The wild swings of cryptocurrency prices could expose conventional companies to unjustifiable risks.
In its final mention of cryptocurrencies, BofA addressed its potential inability to adapt products and services to "evolving industry standards and consumer preferences."
"The widespread adoption of new technologies, including internet services, cryptocurrencies and payment systems, could require substantial expenditures to modify or adapt our existing products and services as we grow and develop our internet banking and mobile banking channel strategies in addition to remote connectivity solutions."
If cryptocurrencies become a force to be reckoned with, then BofA would face tremendous challenges to its business structure, up to and including obsolescence. Regardless of how realistic the risks of cryptocurrency are, Bank of America has smartly begun considering the ramifications.
ETHNews previously reported on Bank of America's pursuit of blockchain-related patents.