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Governors and Heads Endorse Basel Bank Standard for Cryptoassets

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Pavan A Follow

INDIA

Dec, 28 2022

Dec, 28 2022

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The Group of Central Bank Governors and Heads of Supervision (GHOS), the organization that oversees the Basel Committee on Banking Supervision, met on December 16th to finalize a prudential standard on banks' crypto-asset exposures and to set the Committee's work program and strategic priorities for 2023-24. 

 

Cryptocurrencies without backing and stablecoins with ineffective stabilization mechanisms will be subject to strict regulatory measures. The new standard will establish a strong and cautious global regulatory framework for banks' involvement with cryptocurrencies while encouraging innovation and maintaining financial stability. 

 

Members of the GHOS have agreed to implement this standard by January 1, 2025, and have assigned the Committee to monitor its implementation and assess its effects. 

 

Tiff Macklem, who is the chair of the GHOS and governor of the Bank of Canada, said, “The endorsement by the GHOS marks an important milestone in developing a global regulatory baseline for mitigating risks to banks from Cryptoassets." 

 

He added, “It is important to continue to monitor bank-related developments in crypto-asset markets. We remain ready to act further if necessary.” 

 

The Basel Committee has proposed limits on banks' exposure to certain types of cryptocurrency assets, including tokenized traditional assets such as non-fungible tokens and stablecoins , as well as unbacked crypto assets. 

 

According to the proposal, a bank's exposure to these assets should not exceed 2% and should generally be lower than 1%. The assets that meet the criteria are subject to capital requirements based on the risk weight of their underlying exposures. 

 

Traditional finance lobby groups had previously written to the committee suggesting that a 1% cap on banks' exposure to crypto assets could be too restrictive and inhibit innovation using distributed ledger technology. However, the committee's proposal allows for more flexibility in this regard. 

 

Regulation authorities have taken a cautious approach to govern the crypto sector, which has been extremely volatile lately, since the fall of Terra, FTX, and their related companies and tokens. 

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Pavan A

CBW - External Analyst

INDIA

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