A coalition of industry associations has expressed opposition to the Basel Committee on Banking Supervision’s second consultation regarding the regulations governing financial institutions’ investments in crypto assets, advocating for several modifications.
In November, in response to industry pushback, the Basel Committee agreed to reconsider its proposed stringent regulations that would mandate banks to allocate sufficient capital reserves to cover potential losses on their bitcoin holdings, paralleling the existing capital requirements for the riskiest investments.
With the new consultation released, a group of eight trade associations—including the Global Financial Markets Association, the Futures Industry Association, and the International Swaps and Derivatives Association—have again raised concerns. They argue that certain aspects of the second consultation could significantly hinder banks’ capacity to leverage the advantages of distributed ledger technology (DLT) for more efficient traditional banking and financial intermediation functions.
Consequently, banks may struggle to meet customer demand for crypto asset products and services, which could ultimately be detrimental to customers, investors, and the broader financial system. This limitation may also impact the overall role of banks within the financial landscape and the reach of prudential regulators.
One specific concern highlighted by the associations is the proposed “prohibitive” exposure limit to Group 2 crypto assets, set at one percent of a bank’s Tier 1 capital, calculated on a “double-gross” basis. They argue that this approach, which adds both long and short positions without recognizing any hedging, is excessive. Instead, the associations advocate for a net basis calculation with a five percent Tier 1 capital exposure limit, along with the requirement to disclose gross positions to supervisors.
Additionally, the associations contest the introduction of an infrastructure risk add-on for all Group 1 crypto asset exposures, deeming it unnecessary given that existing prudential frameworks already mitigate these risks.