Basel Committee crypto asset prudential treatment proposals get detailed responses

The comments period has ended for the Basel Committee on Banking Supervision (BCBS) “Second Consultation on the Prudential Treatment of Cryptoasset Exposures,” a document published in June 2022. 

International financial associations had a lot to say in response to it. Several did so at once in a joint 84-page comment letter released Oct. 4. In addition, there were a few lone voices, although they did not differ significantly in content from the conclusions made by the joint associations. 

All the commenters had the same basic message. Institute of International Finance (IIF) director of regulatory affairs Richard Gray, speaking on behalf of the joint associations working group that participated in the response letter, summed up the response when he told Cointelegraph in a statement:

“Banks are already experts at risk management and consumer protection.”

Some features and calibrations in the Second Consultation, according to the written response, “would meaningfully reduce banks’ ability to – and in some cases effectively preclude banks from – utilising the benefits of distributed ledger technology (“DLT”) to perform certain traditional banking, financial intermediation and other financial functions more efficiently.”

The iterative approach to reserve requirements

The Second Consultation is named in relation to a document published in June 2021 called “Prudential Treatment of Cryptoasset Exposures,” which itself was built on a 2019 document and the responses to it. In the 2021 paper, the Basel Committee on Banking Supervision divided crypto assets into groups and recommended different prudential treatment for each group.

Group 1 in the committee’s proposal consisted of crypto assets that can subject to at least equivalent risk-based capital requirements the Basel Framework. Group 1a consists of “digital representations of traditional assets using cryptography, Distributed Ledger Technology (DLT) or similar technology rather than recording ownership through the account of a central securities depository (CSD)/custodian.” Group 1b consists of stablecoins and has “new guidance on application of current rules to capture the risks relating to stabilisation mechanisms.”

Group 2 crypto assets were those that failed to meet any of several classification conditions. That included cryptocurrency. Those assets would be “subject to a newly prescribed conservative capital treatment.” The most salient new treatment was the 1,250%…