Basel Committee Issues Consultation Document on Cryptocurrency

As banks increasingly explore or embark on activities related to cryptocurrencies, the Basel Committee on Banking Supervision today released a public consultation document on the prudential treatment of banks’ cryptocurrency asset exposures. The document is the next step in an ongoing process to solicit feedback from external stakeholders. This initial consultation follows a discussion paper published in December 2019, and the committee said it anticipates issuing additional consultations, given the rapid evolution of the crypto market.

“While banks’ exposures to cryptoassets are currently limited, the continued growth and innovation in cryptoassets and related services, coupled with the heightened interest of some banks, could increase global financial stability concerns and risks to the banking system in the absence of a specified prudential treatment,” according to the committee.

The proposal divides cryptoassets into two broad groups. The first group fulfills a set of classification conditions and is eligible for treatment under the Basel Framework with some modifications and additional guidance, including certain tokenized traditional assets and stablecoins. The second category includes assets such as bitcoin that do not fulfill the classification conditions. Because the second group poses higher risks, according to BCBS, they would be subject to a “new conservative” prudential treatment. Central bank digital currencies are not within the scope of the consultation. Feedback is due by Sept. 10.