Global regulators have said that cryptocurrencies like Bitcoin must have the strictest rules on bank capital so as not to put the broader financial system at risk if their value suddenly collapses.
The Basel Committee on Banking Supervision, which includes regulators from the world’s leading financial centers, is proposing a “new conservative prudential regime” for cryptoassets that will force banks to set aside enough capital to cover 100% of potential losses.
This will be the highest capital requirement for any asset, indicating that cryptocurrencies and related investments are considered far more risky and volatile than regular stocks or bonds.
“Crypto assets have raised a number of concerns, including consumer protection, money laundering and terrorist financing, and their carbon footprint,” the Basel Committee said. While most regulated banks currently have limited access to cryptocurrencies, the committee warned that “the rise in cryptoassets and related services could raise concerns about financial stability and increase the risks that banks face.”
The world’s most influential banking standards maker warned on Thursday that some crypto assets have proven to be highly volatile, which means they could “pose risks to banks as risks, including liquidity risk, increase; credit risk; market risk; operational risk (including fraud and cyber risks); money laundering / terrorist financing risk; legal and reputational risks ”.
However, it says that softer rules could apply to stablecoins – a new form of digital asset usually pegged to the value of a traditional currency – which may only require a certain level of capital rules applied to traditional assets such as bonds, loans, deposits, stocks or products.
The committee’s proposals, which will now be discussed, are designed to help protect the global financial system in the event of a sharp drop in cryptocurrency prices.
Bitcoin price has risen more than 5% after the release of the report to $ 37,361. However, the cryptocurrency has dropped 40% since it hit an all-time high of over $ 64,000 (£ 45,000) in mid-April.
If adopted, the committee’s capital requirement could force some banks to abandon operations with cryptocurrencies, the value of which has risen sharply over the past year, but has proven incredibly volatile due to the fact that they are not backed by any other underlying assets, such as dollars or gold. to help justify the price.
More and more lenders disagree on whether to accept or avoid cryptocurrencies, which are growing in popularity among customers. Goldman Sachs and Standard Chartered have launched their own cryptocurrency trading desks to take advantage of their rapid growth, while HSBC has pledged to stay away from the asset.
UK lender NatWest has said it will refuse to serve business customers who accept cryptocurrency payments alongside debit, credit card and cash payments, even if that could mean abandoning well-known companies including ethical cosmetics firm Lush and office sharing firm WeWork.
While most authorities are starting to crack down on the use of cryptoassets, some are taking a more open-minded approach. El Salvador announced this week that it will become the first country to accept Bitcoin as legal tender, despite repeated warnings from central banks that investors must be prepared to lose all of their cash.
A regulator in China triggered a sharp drop in bitcoin prices last month when it banned banks and payment companies from offering customers any cryptocurrency-related services and warned of the risks associated with cryptoasset trading.
Meanwhile, Bank of England Governor Andrew Bailey told investors that they should be prepared to lose all their money if they dabble in cryptocurrencies as they are not subject to consumer protection schemes.
European Central Bank regulators have compared bitcoin’s skyrocketing rise to other financial bubbles such as tulip mania and the South Sea bubble, which drove investors mad before the bubbles burst in the 17th and 18th centuries.