Basel tweaks proposed cryptoasset treatment, adopts certain ABA recommendations

The Basel Committee on Banking Supervision today issued its second consultation on the regulatory treatment of digital assets, including cryptocurrencies. The document follows the first consultation issued a year prior and a round of public comments in 2021, including from ABA, which called on the committee to avoid overly prescriptive approaches toward cryptoassets.

BCBS’s cryptoasset framework recognizes two groups: Group 1, which meets all classification conditions and, and Group 2 assets, which fail to meet any classification requirements. Group 1 assets receive a capital treatment generally based on the existing Basel framework, while riskier Group 2 assets are assigned a 1,250% risk weighting. Key changes in the second consultative document include an add-on to RWA to cover infrastructure risks of Group 1 assets and an add-on for stablcoins that only narrowly pass the basis risk test. For Group 2 assets, the second document provides a set of hedge recognition criteria for certain assets in calculating a bank’s exposure and an overall Group 2 exposure limit of 1% of Tier 1 capital.

ABA recommended in its comments that hedging and netting be recognized as a risk mitigant to curb the impact of the “punitively high” 1,250% risk weighting. The committee also refined the Group 1 classification conditions to reduce the “cliff effects” that ABA observed could easily result in Group 1 cryptoassets being suddenly reclassified as Group 2. The comment deadline for the second consultative document is Sept. 30.