The Basel Committee put out a consultation document towards creating a prudential framework for crypto assets. A number of associations jointly submitted a reply to this consultation: The Global Financial Markets Association, the Financial Services Forum, the Futures Industry Association, the Institute of International Finance, the International Swaps and Derivatives Association and the Chamber of Digital Commerce.
In the 64-page document, the associations noted that there is a need for prudential regulatory certainty in the near to medium term, particularly given the pace of evolution and client demand for crypto assets.
Highlights from the document
As the Basel Committee notes, banks’ exposures to cryptoassets are currently limited, despite the fact that, as an asset class, cryptoassets have grown exponentially over the last several years. That limited exposure, however, is neither desirable nor sustainable.
The Associations agreed with the Basel Committee’s proposals for leverage ratio, large exposures framework and disclosure requirements, but warned that it should not preempt the development of the cryptomarket by prematurely establishing punitive liquidity ratio requirements for crypto assets.
In connection with the overall framework, the associations noted that it should:
- not be overly conservative, so that it does not preclude regulated bank involvement in certain segments of crypto asset markets;
- recognize effective hedging;
- separately capitalize the banking book and trading book;
- ties capital treatment of crypto assets to the risks of the assets, rather than the accounting treatment; and
- is agile by design.