Basel Committee Pushes for Implementation of Global Crypto Banking Rules by 2025

The Basel Committee on Banking Supervision (BCBS) has endorsed its global crypto banking rules for implementation by Jan. 1, 2025, according to an emailed statement on Friday.

The rules suggested that a bank's exposure to certain crypto assets must not exceed 2% and should generally be lower than 1%, which could be too restrictive and could derail innovations using distributed ledger technology.

These assets are tokenized traditional assets including NFTs, stablecoins and unbacked crypto assets that don't meet classification conditions. However, the assets from the list above that meet the criteria "are subject to capital requirements based on the risk weights of underlying exposures as set out in the existing Basel Framework."

“Today’s endorsement by the GHOS (Group of Central Bank Governors and Heads of Supervision) marks an important milestone in developing a global regulatory baseline for mitigating risks to banks from crypto assets," said Tiff Macklem, chair of the GHOS, the oversight body of the committee.

The classification conditions the committee have set out include ensuring crypto passes a redemption risk test and basis risk test.

"The redemption risk test is to ensure that the reserve assets are sufficient to enable the crypto assets to be redeemable at all times," the report said. Meanwhile, the basis risk test "aims to ensure that the holder of a crypto asset can sell it in the market for an amount that closely tracks the peg value," the report said.

It is important to note that regulators around the world have been pushing for regulating the crypto space, especially after the crash of bankrupt crypto exchange FTX. In fact, the crash of FTX has created an immense urgency to start regulating the crypto sector, and targeting such platforms will be the focus for 2023, the new chair of global securities watchdog IOSCO said in an interview.

Jean-Paul Servais said regulating crypto platforms could draw on principles from other sectors which handle conflicts of interest, such as at credit rating agencies and compilers of market benchmarks, without having to start from scratch.