Financial associations IIF and ICMA, alongside other industry groups, call for the Basel Committee to reconsider its restrictive regulations on cryptocurrencies.
In a joint letter to the Basel Committee on Banking Supervision (BCBS), ten prominent industry associations have expressed concerns about the conservative and burdensome capital requirements imposed by the Committee's crypto asset treatment standard. The key criticism revolves around the 1250% risk weighting for tokenized assets on public blockchains, including stablecoins, which effectively prevents banks from holding or transacting with these crypto assets under current capital rules.
The arguments for a reevaluation of the standards are manifold. Firstly, the 1250% risk weight is seen as disproportionate compared to other asset classes, making crypto assets unattractive or impractical for banks to hold. This high capital charge severely limits banks' ability to engage with crypto markets or stablecoins, raising questions about the standard’s risk sensitivity and proportionality.
Secondly, the U.S. government has publicly challenged the BCBS framework, noting that the Committee lacks formal supranational authority, and its rules do not have legal force in the U.S. The White House report signals a desire for the U.S. to have greater influence over global banking rules concerning crypto assets, pushing for regulatory standards that better reflect the U.S. market and policy priorities.
Thirdly, European bodies like the European Banking Authority (EBA) are working to align crypto prudential treatment not only with Basel guidance but also with the EU’s own Markets in Crypto-Assets Regulation (MiCA). They have modified aspects such as removing “prudent valuation” requirements to ease capital treatment, showing that the Basel framework’s rigid approach is under reconsideration amid evolving regulatory environments.
Lastly, calls for a more nuanced treatment that differentiates between various crypto asset types and their specific risk profiles have been made by industry groups and regulators. The Basel Committee’s current framework is criticized for being one-size-fits-all and insufficiently calibrated to actual risks.
Collectively, these criticisms argue that the Basel Committee’s crypto asset treatment standards require reevaluation to better balance prudential safety with market practicality, enhance global regulatory coherence, and prevent unnecessary hindrances on banks’ crypto engagement.
The BCBS has expressed its view that banks cannot address the risks posed by permissionless blockchains. However, the associations argue that the international implementation of the crypto standard is inconsistent between jurisdictions, and the standard is retarding the scaling of important DLT use cases that could help to address risks.
The BCBS finalized the standard at the end of 2022 and opened a consultation a year later. In response to the criticisms, the BCBS delayed the implementation of the rules by a year to January 2026 and announced targeted amendments to the crypto standard in June 2024, but maintained its view that permissionless blockchains are too risky. The associations, however, are pushing for a reassessment of the risk weightings for Group 2 assets.
The associations include seven representing incumbents and three representing blockchain firms. They have also requested a review of the hedging rules and criteria. The BCBS published a document exploring potential paths to permissionless blockchain risk mitigation in June 2024, but the associations argue that more needs to be done to make the standards more practical and aligned with the evolving regulatory landscape.
- The ten industry associations have urged the Basel Committee on Banking Supervision (BCBS) to reevaluate the conservative and burdensome capital requirements for crypto assets on public blockchains, including stablecoins, as the current 1250% risk weight prevents banks from engaging with these assets.
- The U.S. government has emphasized the need for greater influence over global banking rules concerning crypto assets, particularly in light of the BCBS lacking formal supranational authority, and its rules having no legal force in the U.S.
- European bodies, like the European Banking Authority (EBA), are working to align crypto prudential treatment with Basel guidance and the EU’s own Markets in Crypto-Assets Regulation (MiCA), making adjustments such as removing “prudent valuation” requirements for easier capital treatment.
- Calls for a more nuanced treatment that differentiates between various crypto asset types and their specific risk profiles have been made by industry groups and regulators, who criticize the Basel Committee’s current framework for being one-size-fits-all and insufficiently calibrated to actual risks.
- The associations pushing for a reevaluation of the standards include seven representing incumbents and three representing blockchain firms, who are also requesting a review of the hedging rules and criteria, urging for more risk weightings reconsideration for Group 2 assets and a more practical and aligned approach with the evolving regulatory landscape.
