Keeping up with Cryptoassets - the Basel Committee on Banking Supervision consults

As crypto markets continue to grow, and some cryptoassets exhibit a high degree of volatility, regulators are forced to consider the prudential treatment of cryptoassets.

The Basel Committee on Banking Supervision has published a consultation on preliminary proposals for the prudential treatment of banks' cryptoasset exposures. Building on their 2019 discussion paper, the consultation notes that certain cryptoassets "could present risks for banks as exposures increase, including liquidity risk; credit risk; market risk; operational risk (including fraud and cyber risks); money laundering / terrorist financing risk; and legal and reputational risk".

The proposals would see cryptoassets screened and classified into groups which determine the minimum risk-based capital requirements. Tokenised traditional assets, and cryptoassets with effective stabilisation mechanisms, would then be subject to the existing Basel capital framework. All other cryptoassets, posing potentially higher risks, would be subject to a new regime.

What do you think of the classification approach? What might an alternative approach look like? The consultation closes on Friday 10 September 2021.