BIS Warns Crypto Exchanges Are Acting Like Shadow Banks

• The BIS said cryptoasset service providers have expanded far beyond trading and custody into products.
• The paper said many large firms now operate as “multifunction crypto-asset intermediaries.”
• The BIS warned that these firms can take on credit, liquidity, and maturity risk without prudential safeguards.

The Bank for International Settlements said the rapid evolution of cryptoasset service providers into financial intermediaries highlights the need for robust prudential frameworks. In a new Financial Stability Institute paper published on April 23, the BIS said the largest crypto firms now offer a broad mix of services that go well beyond basic trading and custody. 

According to the paper, many of these firms now provide yield and earn products, margin and secured lending, derivatives, and token issuance. The BIS said some of these activities closely resemble the financial intermediation functions traditionally performed by banks and prime brokers. As a result, it argued that many large providers are better described as multifunction crypto-asset intermediaries, or MCIs. 

BIS Says Crypto Firms Now Perform Bank-Like Functions

The BIS said the issue is not only that crypto firms offer more products. It is that they are increasingly engaging in risk transformation that resembles banking activity. When MCIs accept customer cryptoassets through investment or earning programs and then use those assets to fund lending, market-making, or other operations, they take on credit, liquidity, and maturity risk. 

Notably, the paper said many earn products transfer ownership of customer assets to the intermediary, creating short-term redeemable liabilities that are economically similar to deposits. On one hand, customers may see these products as simple yield accounts. On the other hand, the BIS said they can function much more like unsecured funding for opaque internal activities. 

The BIS also said margin loans and derivatives amplify both credit and market risks. Meanwhile, many of these firms operate without deposit insurance, central bank liquidity backstops, or comparable prudential safeguards that apply to traditional intermediaries engaged in similar activity. 

Paper Points to Celsius, FTX, and the 2025 crash

The paper pointed to several examples of how these risks can materialize. It cited the failures of Celsius Network and FTX in 2022, along with the cryptoasset flash crash of October 2025, as evidence that vulnerabilities in large crypto intermediaries can propagate quickly. 

According to the BIS, the problem becomes more serious as these firms deepen links with traditional finance. The paper also stressed that many MCIs do not publish financial statements, while data availability and reporting standards remain underdeveloped compared with those used for traditional financial intermediaries. 

Nevertheless, the BIS did not argue for a single narrow rule. It said the most effective policy mix combines entity-based and activity-based regulation. That includes capital and liquidity buffers, governance and risk management requirements, and stress testing for firms engaged in financial intermediation. 

BIS Calls For Stronger Prudential Oversight

The BIS said several policy challenges still need to be addressed. These include incomplete regulatory coverage of borrowing and lending activities, the need for effective cross-border supervisory cooperation, limited supervisory resources, and weak reporting standards in crypto markets. 

However, the BIS is no longer describing the largest crypto platforms as platforms alone. It is treating them as intermediaries that increasingly act like shadow banks, while still operating without the full prudential framework that traditional finance would require. 

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