Type to search

Global bank supervisor urges tougher rules for bitcoin
Bitcoin would be subject to a new conservative prudential treatment, BCBS said. Photo: Reuters.

BCBS, set up by central bank governors in 1974 to enhance financial stability, said it aims to enhance the security and reliability of cryptoassets

(AF) The top international banking supervisory authority on Thursday urged tougher rules on cryptocurrencies, saying it was launching a public consultation on proposals for how the world’s banks could best manage their exposure to bitcoin and other crypto assets.

The Basel Committee on Banking Supervision (BCBS), which sets the rules for banks, said crypto assets could increase risks to the banking system. Its reform proposals concern the capital that banks must set aside to guard against default risks.

“While banks’ exposures to crypto assets are currently limited, the continued growth and innovation in crypto assets 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,” BCBS said in a statement.

The public consultation on preliminary proposals “for the prudential treatment of banks’ crypto asset exposures” runs until September 10, the BCBS said.

MARKET REACTION

There was little reaction to the proposals in the market, with bitcoin trading at $36,714.72 in the early Asia morning on Friday, up 0.21% in the past 24 hours. Ethereum, another significant cryptocurrency, was down 4.11% at $2,488.13 at the same time.

The proposed prudential treatment outlined in the consultation divides cryptoassets into two groups:

Group 1 crypto assets fulfil a set of classification conditions and as such are eligible for treatment under the existing Basel Framework with some modifications and additional guidance. “These include certain tokenised traditional assets and stablecoins,” BCBS said.

Group 2 crypto assets would include bitcoin, and do not fulfil the BCBS classification conditions. “Since these pose additional and higher risks, they would be subject to a new conservative prudential treatment,” the group said.

ALL-TIME HIGHS

The committee noted the rapid growth in crypto assets over the past few years, with the estimated market capitalisation of some of those assets recently reaching new all-time highs.

“Crypto assets are defined as private digital assets that depend primarily on cryptography and distributed ledger or similar technology,” according to the consultative document issued on Thursday.

It said that while the market remained small relative to the size of the global financial system and banks’ exposures to crypto assets are currently limited, the market’s absolute size was meaningful and developing rapidly.

“Crypto assets have given rise to a range of concerns including consumer protection, money laundering and terrorist financing, and their carbon footprint,” the committee said.

RISKS TO BANKS

The committee said certain crypto assets had shown a high degree of volatility, and could present banks with a range risks to their liquidity and credit.

The BCBS has established a series of international standards for bank regulation and has 45 member institutions from 28 jurisdictions. The committee was set up by central bank governors in 1974 to enhance financial stability by improving the quality of banking supervision worldwide.

With reporting by Agence France-Presse

ALSO SEE:

A regulated crypto market will make bitcoin safer for investors

Elon Musk impersonators steal millions from vulnerable bitcoin fans

George Russell

George Russell is a freelance writer and editor based in Hong Kong who has lived in Asia since 1996. His work has been published in the Financial Times, The Wall Street Journal, Bloomberg, New York Post, Variety, Forbes and the South China Morning Post.

AF China Bond