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Basel Committee on Banking Supervision mulls designing global prudential standard for crypto-assets

Fri, 13 Dec 2019, 06:17 am UTC

The Basel Committee on Banking Supervision (BCBS) is seeking feedback on the prudential regulatory treatment of crypto-assets.

The BCBS is the primary global standard-setter for the prudential regulation of banks and provides a forum for regular cooperation on banking supervisory matters. Its 45 members comprise central banks and bank supervisors from 28 jurisdictions.

The committee on Thursday published a discussion paper “Designing a prudential treatment for cryptoassets.”

“The current Basel framework does not specify the prudential treatment for banks’ exposures to cryptoassets, given their relative novelty. The Committee is considering whether to specify a global prudential standard,” it said.

The paper highlights a number of risks and concerns associated with crypto-assets, including financial stability concerns; risks for banks – liquidity risk, credit risk, market risk, operational risk (including fraud and cyber risks), money laundering and terrorist financing risk, and legal and reputation risks; high volatility; lack of standardisation; and constant evolution.

Given these red flags, the committee believes that crypto-assets do not reliably provide the standard functions of money and can be unsafe to rely on as a medium of exchange or store of value.

“Therefore, if banks are authorised, and decide, to acquire crypto-assets or provide related services, the Committee is of the view that banks should apply a conservative prudential treatment to such exposures, especially for high-risk crypto-assets.”

On these lines, the committee has published the discussion paper and is seeking views of stakeholders on

“(i) the features and risk characteristics of crypto-assets that should inform the design of a prudential treatment for banks’ crypto-asset exposures; and

(ii) 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.”

Interested stakeholders, including academics, banks, central banks, finance ministries, market participants, payment system operators and providers, supervisory authorities, technology companies, and the general public can send their comments by 13 March 2020.

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