Six organisations have called on the Basel Committee to rethink its proposed punitive measures for cryptocurrencies.

The Global Financial Markets Authority (GFMA), along with five other trade associations, have filed a letter to the committee claiming that its consultation would preclude banks from being involved in the crypto assets sector by making it “economically prohibitive to do so.”

“We believe DLT and blockchain can drive efficiencies and help customers, and we see value in delivering those benefits through banks, where there will be transparency, rather than pushing that activity to the unregulated sector,” said Kenneth E. Bentsen, Jr., chief executive of the GFMA. “There is a need for regulation in this space, and an equal need for it to be more balanced than what has been proposed. We believe the Consultation should be adjusted, and the existing risk framework employed, to allow that to happen.”

Earlier this year, the committee announced plans to categorise cryptocurrencies into two separate groups.

The first would be digital assets that fit within the organisation’s current framework with a few changes. The second group, which would include some cryptoassets like bitcoin, would face a new “conservative prudential treatment.”

If carried out, these rules would force banks to put aside money to cover bitcoin losses. This would match current banking capital rules on the riskiest investments.

The groups agreed with the Basel Committee that the approach should follow the principle of “same risk, same activity, same treatment” and that the prudential framework should be technology neutral. But they added that adjustments are needed to achieve true technological neutrality.

They also said that, as outlined in the proposals, the framework should be as simple as possible. However, they believe that some aspects of the proposal should be further simplified, while other areas should be made more risk sensitive.

“The prudential treatment of cryptoassets should leverage existing regulatory framework and the GFMA encourages ongoing public and private sector engagement as the crypto markets evolve to avoid market fragmentation and the concentration of risk in unregulated sectors of financial services,” said Allison Parent, executive director, GFMA. “Our members are in the business of managing risk.

“New technologies have come before and will come again, but a new risk framework is not required for each one.”

She added that the risks of crypto assets, like other existing assets, can be evaluated and managed by using the existing risk management framework, where they would be classified based on criteria and given an appropriate risk weighting–with conservative treatment applied to risky assets.

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