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.