BCBS Consults on Prudential Treatment of Cryptoasset Exposures
The Basel Committee on Banking Supervision (BCBS) launched a second consultation on the prudential treatment of cryptoasset exposures of banks, with the comment period ending on September 30, 2022.
The first consultation was issued in June 2021. This second consultation maintains the basic structure of the proposal in the first consultation, with cryptoassets divided into two broad groups: Group 1 includes crytpoassets eligible for treatment under the existing Basel framework with some modifications while Group 2 includes unbacked cryptoassets and stablecoins with ineffective stabilization mechanisms, which are subject to a new conservative prudential treatment. However, the updated proposals provide more detail on the proposed standard and include new elements such as an infrastructure risk add-on to cover the new and evolving risks of distributed ledger technologies, adjustments to increase risk sensitivity, and an overall gross limit on Group 2 cryptoassets. Below are the key changes in the second consultation:
- The development of the specific standards text for inclusion in the Basel framework in the form of a new chapter (SCO60) on Cryptoasset Exposures
- Elaboration and refinement of the classification conditions, with a revised stabilization test for Group 1b (stablecoins)
- The introduction of an add-on to risk-weighted assets to cover infrastructure risk for all Group 1 cryptoassets
- Potentially subjecting the Group 2 cryptoassets that meet a set of hedging recognition criteria (that is, Group 2a) to modified versions of the market risk requirements, which permit a limited degree of hedge recognition in the calculation of a bank’s net exposure
- Delinking the capital requirements that will apply to cryptoassets from their classification as tangible or intangible assets under the accounting standards
- Clarification on the delineation between risks that would be covered by the operational risk framework and the risks that should instead be captured in the credit and market risk frameworks
- Additional detail added to specify the application of the liquidity risk requirements, including the treatment of crypto liabilities (that is, bank issued cryptoassets)
- Introduction of an exposure limit that will initially limit a bank’s total exposures to Group 2 cryptoassets to 1% of Tier 1 capital
This consultation does not address the prudential treatment of central bank digital currencies (CBDCs) while the prudential treatment of climate risks is being addressed separately. The Committee aims to finalize the standards around year-end and these standards may be tightened based on the overall risk assessment and also if shortcomings in the consultation proposals are identified or new elements of risks emerge.
Related Links
Keywords: International, Banking, Crypto Assets, Basel, Regulatory Capital, Credit Risk, Market Risk, Liquidity Risk, Operational Risk, ML TF Risk, Operational Resilience, BCBS
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
DNB Publishes Multiple Regulatory and Reporting Updates in June 2022Related Articles
OSFI Issues Phase2 Consultation on Climate Scenario Exercise for Banks
The Office of the Superintendent of Financial Institutions (OSFI) recently announced a consultation on the second phase of the Standardized Climate Scenario Exercise (SCSE) for banks and other financial institutions it regulates in Canada.
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
