Featured Product

    BCBS Consults on Design of Prudential Treatment for Crypto-Assets

    December 12, 2019

    BCBS published a discussion paper on the design of prudential treatment for crypto-asset exposures of banks. The discussion paper sets out some general principles for the design of a prudential treatment of crypto-assets, including an illustrative example of potential capital and liquidity requirements for exposures to high-risk crypto-assets. The comment period on the discussion paper ends on March 13, 2020. If BCBS decide to specify a prudential treatment of crypto-assets, it will issue a consultation paper detailing its proposals and will seek further input from stakeholders.

    While certain types of crypto-assets are at times referred to as "crypto-currencies," BCBS is of the view that such assets do not reliably provide the standard functions of money and can be unsafe to rely on as a medium of exchange or store of value. These types of crypto-assets are not legal tender and are not backed by any government or public authority. Therefore, if banks are authorized, and decide, to acquire crypto-assets or provide related services, BCBS is of the view that banks should apply a conservative prudential treatment to such exposures, especially for high-risk crypto-assets. Therefore, BCBS is publishing this discussion paper to seek the views of stakeholders on a range of issues related to the prudential regulatory treatment of crypto-assets, including features and risk characteristics of crypto-assets that should inform the design of a prudential treatment for crypto-asset exposures of banks. The Basel Committee is also seeking views on the general principles and considerations to guide the design of a prudential treatment of bank exposures to crypto-assets.

    The illustrative example of potential capital and liquidity requirements for exposures to high-risk crypto-assets covers the banking book and trading book treatment of crypto-asset exposures of banks. It also specifies that crypto-assets would not be eligible to serve as financial collateral for the purpose of the credit risk mitigation framework and they would not be eligible as high-quality liquid assets (HQLA) for the purpose of the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). Additionally, banks would be required to disclose granular information on any material crypto-asset holdings on a quarterly basis, which would include information on the exposure amounts of different direct and indirect crypto-asset exposures, the capital requirement for such exposures, and the accounting treatment of such exposures. In considering how to specify a prudential treatment for crypto-assets, BCBS has been guided by the following general principles:

    • Same risk, same activity, same treatment— A crypto-asset and a "traditional" asset that are otherwise equivalent in their economic functions and the risks they pose should not be treated differently for prudential purposes. The prudential framework should not be designed in a way to explicitly advocate or dissuade specific technologies related to crypto-assets, but it should account for any additional risks resulting from the unique features and other factors of crypto-assets relative to traditional assets.
    • SimplicityThe design of the prudential treatment of crypto-assets should be simple and flexible in nature. For example, complex internally modeled approaches should not be used to calculate regulatory requirements. Where appropriate, the prudential treatment should build on the existing framework, especially for crypto-assets with equivalent economic functions and risks as other asset classes. 
    • Minimum standardsAny specified prudential treatment of crypto-assets by BCBS would constitute a minimum standard. Jurisdictions would be free to apply additional and/or more conservative measures if warranted. As such, jurisdictions that currently prohibit their banks from having any exposures to crypto-assets would be deemed compliant with any potential global prudential standard.

    The current Basel framework does not specify the prudential treatment for bank exposures to crypto-assets, given their relative novelty. BCBS is of the view that the growth of crypto-assets and related services has the potential to raise financial stability concerns and increase risks faced by banks. Crypto-assets are an immature asset class, given the lack of standardization and constant evolution. Certain crypto-assets have exhibited a high degree of volatility and present risks for banks, including liquidity risk, credit risk, market risk, and operational risk (including fraud and cyber risks), third-party risks, and legal and reputational risks. The responses to this paper will inform the development of a prudential treatment for crypto-assets at large, including for crypto-assets that are issued by regulated financial institutions or that make use of stabilization tools. 


    Related Links

    Comment Due Date: March 13, 2020

    Keywords: International, Banking, Crypto-Assets, Capital Requirements, Fintech, Banking Book, Trading Book, BCBS

    Related Articles
    News

    HKMA on Fintech Adoption and Innovation by Banks in Hong Kong

    HKMA announced the publication of a report on fintech adoption and innovation in the banking industry in Hong Kong.

    May 20, 2020 WebPage Regulatory News
    News

    BIS on Impact of Increasing Use of Cloud Technology on Cyber Risk

    BIS published a working paper that examines the drivers of cyber risk, especially in context of the cloud services.

    May 20, 2020 WebPage Regulatory News
    News

    ECB Consults on Guide for Managing Climate and Environmental Risks

    ECB launched consultation on a guide specifying how the Banking Supervision expects banks to consider climate-related and environmental risks in their governance and risk management frameworks and when formulating and implementing their business strategy.

    May 20, 2020 WebPage Regulatory News
    News

    ECB Issues Opinion on Revisions to CRR in Response to COVID Crisis

    ECB published an opinion (CON/2020/16) on amendments to the prudential framework in EU in response to the COVID-19 pandemic.

    May 20, 2020 WebPage Regulatory News
    News

    EBA Assesses Interlinkages Between Recovery and Resolution Planning

    EBA published a report that examines the interlinkages between recovery and resolution planning under the Bank Recovery and Resolution Directive (BRRD).

    May 20, 2020 WebPage Regulatory News
    News

    SRB Publishes Final MREL Policy Under the Banking Package

    SRB published the final Minimum Requirements for Own Funds and Eligible Liabilities (MREL) policy under the Banking Package.

    May 20, 2020 WebPage Regulatory News
    News

    US Agencies Amend Interim Final Rule on Transition Period for CECL

    US Agencies (FDIC, FED, and OCC) published a final rule that makes technical changes to the March 31, 2020 interim final rule that provides a five-year transition period for the impact of the current expected credit loss (CECL) methodology on regulatory capital.

    May 19, 2020 WebPage Regulatory News
    News

    ECB Releases Results of March Survey on Credit Terms and Conditions

    ECB published results of the March 2020 survey on credit terms and conditions in euro-denominated securities financing and over-the-counter (OTC) derivatives markets.

    May 19, 2020 WebPage Regulatory News
    News

    FINMA Adjusts Deadlines for COVID-19 Relief Measures for Banks

    FINMA published guidance (06/2020) on extending or discontinuing various exemptions that were granted due to the COVID-19 crisis.

    May 19, 2020 WebPage Regulatory News
    News

    SRB Consults on Standardized Data Set for Bank Valuation in Resolution

    SRB launched a consultation on the minimum data needed for valuation of a bank in resolution.

    May 19, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5203