BSBC consults on tougher oversight of cryptoassets

The Basel Committee on Banking Supervision (BCBS) has issued a consultation on the design of a prudential treatment for cryptoassets to improve regulatory oversight

While the crypto-asset market is still small relative to the size of the global financial system, and banks' exposure is 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.

The BCBS Committee warned that the growth of crypto-assets and related services has the potential to raise financial stability concerns and increase risks faced by banks, as well as its potential to be used for money laundering.

The estimated market capitalisation of cryptoassets reached a historical peak exceeding $800bn (£606bn) in January 2018.

‘Cryptoassets are an immature asset class given the lack of standardisation and constant evolution,’ the Committee said, warning that ‘certain cryptoassets have exhibited a high degree of volatility, and present risks for banks, including liquidity, credit, market, operational (including fraud and cyber), money laundering and terrorist financing, and legal and reputation risks’.

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

The consultation covers a number of issues, 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.

Once the consultation feedback has been reviewed, the Basel Committee on Banking Supervision will take a view on whether to specify a prudential approach. Subsequent consultation on any policy changes and the regulatory framework will follow in due course, although no timetable has been set.

‘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 cryptoassets would be deemed compliant with any potential global prudential standard,’ the Committee said.

The closing date for the consultation is 13 March 2020.

BIS Discussion paper Designing a prudential treatment for crypto-assets

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