The Basel Committee on Banking Supervision has just released the final standard for the prudential treatment of banks' exposures to cryptoassets, marking a significant milestone in the intersection of traditional finance and the crypto space. Endorsed by the Group of Governors and Heads of Supervision, this standard is set to be implemented by January 1, 2025. The standard can be found here.
- Structure of the Standard: Cryptoassets are categorized into Group 1 and Group 2, each subject to specific capital requirements and risk treatments. Additional elements include infrastructure risk add-on, redemption risk test, supervision requirement, and exposure limits.
- Changes Relative to the Proposal: Modifications include a flexible approach to infrastructure risk add-on, removal of the basis risk test, changes to Group 2 exposure limit consequences, and adjustments to classification conditions assessment.
- Elements Subject to Specific Monitoring and Review: The Committee will monitor issues such as stablecoin statistical tests, risks of permissionless blockchains, treatment of Group 1b cryptoassets received as collateral, Group 2a criteria, and exposure limits calibration.
- Text of the Standard: A new chapter in the Basel Framework outlines the prudential treatment of cryptoasset exposures, covering classification conditions, capital requirements, risk add-ons, risk management, and disclosure requirements.
- Classification Conditions: Cryptoassets are divided into Group 1 (including tokenized traditional assets and stablecoins) and Group 2 (other cryptoassets), with specific conditions for each group.
- Responsibilities: Banks are responsible for ongoing compliance assessment, while supervisors review and assess banks' decisions, ensuring consistent application across jurisdictions.
- Credit and Market Risk: Different rules apply to Group 1 and Group 2 cryptoassets concerning credit and market risk capital requirements, including treatment under the Internal Models Approach.
- Infrastructure Risk for Group 1 Cryptoassets: Authorities can apply an add-on to capital requirements for Group 1 cryptoasset exposures due to potential risks in the technological infrastructure.
- Minimum Capital Requirements for Group 2 Cryptoassets: Divided into Group 2a and Group 2b, with specific treatments for each regarding credit, market, and CVA risk.
- Operational and Liquidity Risk Requirements: Banks must ensure operational and liquidity risk adequacy, treating cryptoasset exposures consistently with traditional approaches.
- Treatment in LCR and NSFR Frameworks: The treatment of cryptoassets in liquidity and stable funding ratio frameworks depends on asset structure and commercial function.
- Prudential Treatment of Cryptoasset Exposures: Varies based on redeemability, collateralization, and issuer characteristics.
- Leverage Ratio and Large Exposures Requirements: Cryptoassets are included in leverage ratio exposure measures, and exposure limits apply similar to other exposures.
- Bank Risk Management and Supervisory Review: Banks must establish risk management policies, with supervisors evaluating practices and addressing deficiencies.
- Disclosure Requirements: Regular disclosure of exposure, risk management policies, and related risks is mandatory.
This comprehensive standard sets the stage for the prudent management of banks' exposures to cryptoassets, ensuring stability and resilience in the financial system.
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