Committee of Global Regulators Calls on Banks to Minimize Risks of Crypto Assets

Committee of Global Regulators Calls on Banks to Minimize Risks of Crypto Assets

• Basel has published a second banking consultation that includes the risks of blockchain technology.
• Previously, it had made a series of recommendations related to losses from holding bitcoins.
• Global financial regulators are concerned about what is currently happening in the market and its impact on the financial system.

The global Committee of banking regulators in Basel (BIS) based in Switzerland, is proposing to banks that they include in their budget forecasts the risks derived from those with crypto assets, as reported by Reuters.

Banking regulators from major global financial centers that make up the committee said on Thursday that banks would take a conservative approach on the issue of business related to blockchain technology.

Specifically, the Basel Committee is calling for bankers to set aside a percentage of capital to cover the risks of “unbacked” digital assets on their books.

Concern Over Crypto Market Movements

The current crisis of the crypto market with the collapse of terraUSD, the collapse of cryptocurrencies and the gigantic losses accumulated by DeFi companies, in recent weeks, have caused concern in the governing body of the global financial system.

Global regulators are concerned about the potential risks that the crypto winter poses to the global financial system. Although the regulated crypto finance sector is still small compared to the size of traditional markets (stocks, bonds and derivatives).

This is the second time that the Basel Committee has made recommendations to the banking sector on the handling of crypto assets. The capital reserve proposal aims to cover the losses of cryptocurrencies not backed by fiat money and stablecoins with less secure certainty mechanisms.

Limit Crypto Exposure

The committee affirms that these assets should be treated as conservatively and prudently as possible with capital reserves, in the face of any eventual loss. Likewise, it proposes establishing a new limit for gross exposures to this type of asset.

The first consultation of the Basel Committee on digital finance was in June 2021. The regulators then proposed that banks have enough capital to cover the losses generated by holding bitcoins.

To develop this proposal, the committee divided digital assets into two large groups. On the one hand, the stablecoins and on the other, the cryptocurrencies and other cryptoactives of higher risk.

Regarding this last group, it indicated that it was necessary to give it a more conservative treatment in terms of capital. The new Basel proposals incorporate new elements, such as the provision of additional capital covering “evolving risks” of blockchain technology.

The committee of regulators will continue to evaluate the performance of the market to determine if it is necessary to add new proposals or further tighten the current ones. By the end of the year, the body plans to publish the rules related to crypto finance.

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