Posted On 12/18/2022
On December 16, 2022, the Group Of Central Bank Governors And Heads Of Supervision (GHOS), the supervisory arm of the Basel Committee On Banking Supervision, gave the green light to the final regulatory standards for banks’ exposure to crypto assets and the Committee’s work agenda for the strategic priorities of 2023-2024.
The GHOS endorsed the Basel Committee’s finalized prudential treatment for banks’ crypto asset exposure. Unbacked crypto assets and stablecoins with ineffective stabilization mechanisms will be subject to a conservative prudential treatment. This standard will create a robust and prudent global regulatory framework to regulate international banks’ crypto asset exposure and promote responsible innovation while maintaining financial stability. The standard will be adopted by GHOS members on January 1, 2025, with the Committee monitoring its implementation and effects.
Although global banks have relatively low exposure to crypto assets, recent developments have highlighted the importance of implementing a global minimum prudential framework that allows international banks to reduce their risk of crypto asset losses.
The Bank For International Settlements (BIS) Report on Cryptocurrencies “Prudential Treatment of Crypto Asset Exposures” provides guidance on the final regulatory framework that banks will use to expose themselves to digital assets, including traditional tokenized assets and unbacked cryptocurrencies.
According to the report: “Group 2 Exposure Limit: A bank’s total exposure to Group 2 crypto assets must not exceed 2% of the bank’s Tier 1 capital and should generally be less than 1%. Banks that breach the 1% limit will apply the more conservative Group 2b capital treatment to the amount by which the limit is exceeded. Failure to comply with the 2% limit will result in all Group 2 exposures being subject to Group 2b capital treatment.”
Basel Committee
The Basel Committee is the global standard-setter in banking prudential regulation. It is tasked with increasing the supervision, regulation and practices of banks around the world in order to improve financial stability. The Committee reports to the Group Of Central Bank Governors And Heads Of Supervision and must seek their approval for important decisions, however, it has no supranational authority or formality and its decisions do not have legal force. To fulfill its mandate, it depends on the contributions of its members. 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.
