Posted on 12/18/2022
On December 16, 2022, the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of the Basel Committee on Banking Supervision, endorsed a finalized prudential standard on banks’ cryptoasset exposures and the Committee’s work program and strategic priorities for 2023–2024.
The Group of Central Bank Governors and Heads of Supervision endorsed the Committee’s finalized prudential treatment for banks’ exposures to cryptoassets. Unbacked cryptoassets and stablecoins with ineffective stabilization mechanisms will be subject to a conservative prudential treatment. The standard will provide a robust and prudent global regulatory framework for internationally active banks’ exposures to cryptoassets that promotes responsible innovation while preserving financial stability. GHOS members agreed to implement the standard by January 1, 2025, and tasked the Committee with monitoring the implementation and effects of the standard.
While the global banking system’s direct exposures to cryptoassets remain relatively low, recent developments have further highlighted the importance of having a strong global minimum prudential framework for internationally active banks to mitigate risks from cryptoassets.
The Bank for International Settlements (BIS) report on cryptocurrencies called “Prudential treatment of cryptoasset exposures” gives guidance on the final standard structure for banks regarding exposure to digital assets, including tokenized traditional assets, stablecoins, and unbacked cryptocurrencies.
According to the report, it reads, “Group 2 exposure limit: A bank’s total exposure to Group 2 cryptoassets must not exceed 2% of the bank’s Tier 1 capital and should generally be lower than 1%. Banks breaching the 1% limit will apply the more conservative Group 2b capital treatment to the amount by which the limit is exceeded. Breaching the 2% limit will result in the whole of Group 2 exposures being subject to the Group 2b capital treatment.”
Basel Committee
The Basel Committee is the primary global standard setter for the prudential regulation of banks and provides a forum for cooperation on banking supervisory matters. Its mandate is to strengthen the regulation, supervision and practices of banks worldwide with the purpose of enhancing financial stability. The Committee reports to the Group of Central Bank Governors and Heads of Supervision and seeks its endorsement for major decisions. The Committee has no formal supranational authority, and its decisions have no legal force. Rather, the Committee relies on its members’ commitments to achieve its mandate. The Group of Central Bank Governors and Heads of Supervision is chaired by Tiff Macklem, Governor of the Bank of Canada. The Basel Committee is chaired by Pablo Hernández de Cos, Governor of the Bank of Spain.
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