Global regulators are asking cryptocurrencies to bring in tougher banking capital rules than any asset, arguing that the requirements for holding bitcoin and similar tokens should be much higher than those for conventional stocks and bonds.
Banks with exposure to volatile cryptocurrencies must face stricter capital requirements to reflect higher risks, said the Basel Committee on Banking Supervision, the world’s most powerful bank of banking standards.
His intervention came in one published report Thursday as world policymakers intensify plans to regulate the emerging market in fury.
The Basel committee acknowledged that, although banks ’exposure to the nascent crypto industry was limited,“ the growth of cryptographic activity and related services has the potential to raise concerns about financial stability and increase the risks faced by banks “.
Among the risks cited include market and credit risk, fraud, piracy, money laundering and terrorist financing risk.
Some assets, such as stock exchange tokens, would enter into existing amended rules on minimum capital standards for banks. Others, such as bitcoin, will face a new “conservative” prudential regime, he advised.
Stablecoins – cryptocurrencies linked to traditional assets such as currencies – would also qualify under existing rules if they were fully reserved at all times, the committee said. Banks will monitor that this was “effective at all times,” he added.
All other cryptographic assets, including bitcoin and ethereum, will enter the new more strenuous regime. The Basel committee proposed a risk weight of 1,250 percent, in line with the tougher standards for banks ’exposure to riskier activity.
This would mean that banks would in fact have to hold capital equal to the exposure they face. A $ 100 exposure to bitcoin would result in a minimum capital requirement of $ 100, Basel said.
The rules apply to assets created for decentralized finance (DeFi) and non-fungible tokens (NFT), but the central bank’s potential numerical values were outside the scope of the consultation, he added.
Bitcoin rose 9 percent last day according to CoinMarketCap, while ether gained 2.5 percent.
The Basel proposals come as global regulators clash with the rapid emergence of digital assets and investor interest. U.S. authorities also want to take a more active role in overseeing the $ 1.5 billion cryptocurrency market because of concerns that a lack of oversight risks harming investors in the highly volatile and speculative industry. .
Prudential rules set requirements on the liquid assets and capital levels that a bank must set aside in order to fall in an orderly manner, without harming its customers or creating panic in the market.
Digital tokens based on traditional assets, such as stocks, bonds, commodities and cash, would fall into the first category for cryptographic assets.
However, they had to have the same level of legal rights such as traditional assets, such as the right to a dividend or other cash flows that some do not currently carry.
The consultation ends in September.