Global regulators are urging cryptocurrencies to comply with the toughest banking capital rules for any asset, arguing that the storage requirements for bitcoins and similar tokens should be much higher than those for common stocks and bonds.
Banks affected by volatile cryptocurrencies must face tighter capital requirements to reflect higher risks, the Basel Committee on Banking Supervision, the world’s most influential set of banking standards, said.
His intervention was reflected in a report released Thursday as politicians around the world step up plans to regulate the fast-growing market.
The Basel Committee acknowledged that while banks’ influence on the nascent crypto industry was limited, “the growth of cryptoassets and related services could raise concerns about financial stability and increase the risks faced by banks.”
Among the risks mentioned were market and credit risk, fraud, hacking, money laundering and terrorist financing risk.
Some assets, such as exchange tokens, fit into the amended existing rules on minimum capital standards for banks. Others, such as Bitcoin, will face a new “conservative” prudential regime, he recommended.
The committee said stablecoins – cryptocurrencies tied to traditional assets like currencies – would also comply with existing regulations if they were always fully reserved. Banks will have to ensure that this is “effective at all times,” he added.
All other crypto assets, including Bitcoin and Ethereum, will go into a new, tougher regime. The Basel Committee has proposed a risk weighting of 1,250 percent, which is in line with the most stringent standards for banks with riskier assets.
This would mean that banks would actually have to hold capital equal to the risk they face. Basel said a $ 100 risk in bitcoin would result in a $ 100 minimum capital requirement.
The standards will apply to assets created for decentralized finance (DeFi) and non-fungible tokens (NFT), but potential central bank digital currencies are outside the scope of consultation, he added.
Basel’s proposals came at a time when global regulators are grappling with the rapid emergence of digital assets and growing investor interest. The US authorities also want to play a more active role in overseeing the $ 1.5 trillion cryptocurrency market amid concerns that the lack of oversight could harm investors in a highly volatile and speculative industry.
State Street and Citigroup are among the banks that have indicated they want to provide more crypto services to customers.
Prudential rules set requirements for liquid assets and capital levels that a bank must defer so that it can wind down its operations in an orderly manner without harming its customers or creating market panic.
Digital tokens based on traditional assets such as stocks, bonds, commodities, and cash fit into the first category of cryptoassets.
However, they must have the same level of legal rights as a traditional asset, such as the right to dividends or other cash flows that some do not currently have.
The consultation ends in September.