Basel Committee consults on crypto regulation

The Basel Committee on Banking Supervision has published a discussion paper on the design of a prudential treatment for crypto assets.

A statement from the committee of banking supervisory authorities explained that while the crypto asset market is still small relative to the size of the global financial system, and banks' exposures to crypto-assets are currently limited, "the absolute size of the market is meaningful and there continue to be rapid developments, with increased attention from a broad range of stakeholders".

As previously indicated, the committee is of the view that the growth of crypto assets and related services has the potential to raise financial stability concerns and increase risks faced by banks.

"Crypto assets are an immature asset class given the lack of standardisation and constant evolution," the committee stated, with certain assets exhibiting a high degree of volatility, presenting risks for banks, including liquidity, credit, market, operational - including fraud and cyber - money laundering and terrorist financing, legal and reputation risks.

"If banks are authorised, and decide, to acquire crypto assets or provide related services, the committee is of the view that they should apply a conservative prudential treatment to such exposures, especially for high-risk crypto assets."

The new discussion paper seeks the views of stakeholders on a range of issues related to the prudential regulatory treatment of crypto-assets, including:

• the features and risk characteristics of crypto assets that should inform the design of a prudential treatment for banks' crypto asset exposures; and
• general principles and considerations to guide the design of a prudential treatment of banks' exposures to crypto assets, including an illustrative example of potential capital and liquidity requirements for exposures to high-risk crypto assets.

Should the committee decide to specify a prudential treatment of crypto assets, it will issue a consultation paper detailing proposals and seek further input from stakeholders.

Any specified treatment would constitute a minimum standard for internationally active banks. Jurisdictions would be free to apply additional and/or more conservative measures if warranted.

"As such, jurisdictions that currently prohibit their banks from having any exposures to crypto assets would be deemed compliant with any potential global prudential standard," the committee noted. "More generally, this discussion paper should not be interpreted as an endorsement or support by the committee for any specific existing or planned crypto asset."

Comments are welcomed until 13 March 2020 on the analyses and ideas set out in the paper from all stakeholders, including academics, banks, central banks, finance ministries, market participants, payment system operators and providers, supervisory authorities, technology companies and the general public.

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