Featured Product

    ISDA Responds to BCBS Proposal on Treatment of Cryptoasset Exposures

    September 21, 2021

    The International Swaps and Derivatives Association (ISDA), along with several other associations, submitted a joint response to the Basel Committee on Banking Supervision (BCBS) consultation on preliminary proposals for the prudential treatment of cryptoasset exposures. The BCBS consultation was published in June 2021. ISDA and the other associations support the BCBS decision to engage in an iterative approach for the prudential treatment of cryptoassets and suggest certain improvements to the proposal. Overall, the response letter reinforces that making greater use of the existing international prudential framework (Basel III) is the best way to achieve the principles underpinning the consultation.

    The Associations agree with BCBS that the approach should follow the principle of “same risk, same activity, same treatment” and that the prudential framework should be technology-neutral. However, adjustments are needed to achieve true technological neutrality. The Associations also believe that the framework should be as simple as possible and suggest that certain aspects of the proposal should be further simplified and/or made more risk-sensitive. Given the cross-border nature of the cryptoasset markets, the Associations support having minimum global standards, supported by coordination across jurisdictions to help ensure an approach that is consistent and comparable. The Associations recommend BCBS to ensure that the framework is not overly conservative, so that it does not preclude regulated bank involvement in certain segments of cryptoasset markets. The Associations recommend to BCBS that the framework for cryptoassets should utilize the existing prudential framework for all other bank exposures that has been developed over many years taking into account the following criteria:

    • The framework would allow for technological neutrality and be designed to reflect underlying risk.
    • The availability and use of effective hedging should be recognized in the prudential framework.
    • The need for differences in the capital treatment of cryptoassets held in the banking book versus the trading book should be recognized in the framework as it is for other bank exposures; this will help to appropriately capitalize the different risks of trading and banking book activities. For certain Group 2 cryptoassets, the exposure to changes in price is best captured through the market risk framework. Thus, for banking book exposures to this set of cryptoassets, applying the market risk framework would be appropriate, similar to the treatment of foreign exchange and commodities risk in the banking book under the current framework and net short credit and equity risk in the banking book in the future.
    • The capital treatment of Group 2 cryptoassets should be tied to the risks of the assets, not their accounting treatment. This approach should help avoid disparate treatment across jurisdictions resulting from different accounting regimes. Assets with different risk profiles should be subject to correspondingly different capital standards.


    Related Links

    Keywords: International, Banking, Securities, Cryptoassets, Basel, Credit Risk, Market Risk, Large Exposures, Regulatory Capital, Hedging, Banking Book, Trading Book, BCBS, ISDA

    Featured Experts
    Related Articles

    EBA Proposes Standards for IRRBB Reporting Under Basel Framework

    The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.

    January 31, 2023 WebPage Regulatory News

    FED Issues Further Details on Pilot Climate Scenario Analysis Exercise

    The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.

    January 17, 2023 WebPage Regulatory News

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News

    EBA Updates Address Basel and NPL Requirements for Banks

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.

    December 22, 2022 WebPage Regulatory News

    ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite

    The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.

    December 22, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8699