Draft Basel Rules Make Crypto Trading Too Costly For Banks, Industry Says


Nine banking industry associations submitted a letter to the Basel Committee on Banking Supervision (BCBS) in response to its proposal to introduce strict capital requirements for banks seeking to hold crypto assets on their books.

In June of this year, the BCBS released a consultation paper that assigned a 1,250% risk weight to Bitcoin (BTC), meaning that banks would have to hold $ 1 of capital for every $ 1 of exposure they have. ‘they have on Bitcoin.

In their letter this week, industry groups – including the derivatives associations ISDA and FIA, the Institute of International Finance, the European market body AFME and the Digital Chamber of Commerce – argued that the proposed prudential framework by the BCBS would create “material obstacles to regulated banking participation in the crypto-asset markets.”

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They argued that “certain elements of the proposal make the involvement of banks in the crypto-asset market capital-prohibitive,” adding: “This approach is of particular concern given the rapid growth of the market. crypto-asset-related market activity with participants outside the scope of prudential and market regulations.

To improve the BCBS proposal, associates argued for a more nuanced taxonomy of various crypto assets and their different risk profiles. Instead of a “gross application of a single undifferentiated risk weight of 1250%”, the letter includes a detailed appendix which argues in favor of taking into account aspects such as the existence of a liquid market and bidirectional for some crypto assets.

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Despite their many disagreements with the letter of the CBCB’s proposals, the associations nevertheless underlined the need for regulatory security “in the short and medium term, particularly given the pace of change and customer demand for crypto-assets”. The letter also noted that at present, banks’ exposure to crypto remains limited, but pointed out that the industry views this limited exposure as “neither desirable nor sustainable” for several reasons.

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These reasons include the potential benefits that distributed ledger technology presents to the financial services industry and the existing and significant customer demand for crypto-related products and services. Additionally, the letter claimed that the benefits of crypto assets and their underlying technology:

“Will be achieved in the broadest and most transparent way when regulated banks […] are able to play a significant role. In particular, the public and the regulatory community would benefit from banks’ involvement in the crypto-asset space due to this long history of identifying, monitoring, and managing risk from both a perspective. prudential and behavioral on an ongoing basis.

The letter proposed that the BCBS be able to make more use of the existing international prudential framework, for example Basel III, to achieve its objectives and implement a product independent framework.

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