BoM Proposes Guideline for Virtual Asset Related Activities of Banks
The Bank of Mauritius (BoM) proposed guideline that sets out the framework for a sound and prudent approach by banks when dealing with virtual-asset-related activities, with the feedback period for the consultation ending on December 30, 2022.
This guideline, which is based on the principles set out in the second consultative document of the Basel Committee on Banking Supervision on the prudential treatment of crypto-asset exposures, applies to all banks licensed under the Banking Act 2004 and engaged in virtual asset-related activities. The guideline sets out the principles to be followed by banks involved in activities related to virtual assets, covers the prudential classification and the prudential treatment of virtual assets, and states that:
- Prior to engaging in any virtual asset-related activity, banks shall ensure that the strategy, risk appetite, risk limits, and risk management framework, including relevant policies, are duly approved by the board. Also, banks shall satisfy themselves that the virtual-asset-related activities are duly licensed and regulated.
- Banks may be exposed to credit risk; therefore, banks shall ensure that the credit risk assessment takes into consideration the risks associated with virtual assets and that there are appropriate systems in place to monitor the value of virtual assets provided as collateral. Banks shall ensure that the virtual assets recognized as collateral can be liquidated promptly.
- Banks shall assess the potential impact of exposures to virtual assets on the liquidity position of banks and factor such exposures into their internal liquidity adequacy assessment processes.
- Banks shall ensure that internal operational risk and cyber and technology risk management frameworks duly cover the risks associated with activities related to virtual asset.
- Banks shall identify, assess, and understand the money laundering, terrorism financing, and proliferation financing risks that may arise from virtual asset related activities and take appropriate measures to manage and mitigate these risks.
- The risk-weighted assets for Group 1a Virtual Assets (tokenized traditional assets) in the banking book shall be determined as set out in the Guideline on Standardized Approach to Credit Risk for the relevant non-tokenized traditional assets.
- The minimum capital requirements for credit risk for Group 1b Virtual Assets (virtual assets with an effective stabilization mechanism) in the banking book shall be determined by the Bank on a case-by-case basis and shall be at least equal to the value of exposure amount.
- Group 1 Virtual Assets that are tokenized versions of High-Quality Liquid Assets (HQLA) may be considered as HQLA provided that the equivalent traditional asset and their tokenized version both satisfy the characteristics and eligibility criteria of HQLA set out in the Guideline on Liquidity Risk Management.
- Banks shall submit a quarterly report on virtual-asset-related activities and shall disclose, at least on an annual basis, in their annual reports, their material virtual-asset-related activities, including their direct and indirect exposure amounts for each of these activities.
In Mauritius, the Virtual Asset and Initial Token Offering Services Act 2021 (The VAITOS Act), which came into force on February 07, 2022, provides for a regulatory framework for new and developing activities regarding Virtual Assets and Initial Token Offerings. The VAITOS Act empowers the Financial Services Commission, Mauritius (the FSC) to regulate and supervise Virtual Asset Service Providers and issuers of Initial Token Offerings. Banks may also be engaged in activities related to virtual assets and provide banking services to Virtual Asset Service Providers, issuers of Initial Token Offerings, and customers dealing in virtual assets. Thus, BoM has come up with this draft Guideline for Virtual Asset related Activities.
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Keywords: Middle East and Africa, Mauritius, Banking, Basel, Guidance, DLT, Distributed Ledger Technology, Crypto-Assets, Regtech, Credit Risk, Liquidity Risk, BoM
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