Novel risks, mitigants and uncertainties with permissionless distributed ledger technologies

Banks that transact on permissionless blockchains or similar distributed ledger technologies (DLTs) face various risks. This paper considers the risks related to operations and security, governance, legal, compliance (including money laundering/financing of terrorism) and settlement finality. Certain risks stem from the blockchain's reliance on unknown or third parties, which makes it difficult for banks to conduct due diligence and oversight. These risks require new risk management strategies and safeguards. Current practices for mitigating these risks remain in various stages of development and have not been tested under stress.