Central Banks Consult on Tougher Crypto Asset Oversight

The Basel Committee on Banking Supervision (BCBS) is seeking comments on prudential treatment of crypto asset by March 2020.

The Basel Committee on Banking Supervision (BCBS) is soliciting comments on “Designing a prudential treatment for crypto assets,” to improve the regulatory oversight by March 2020. The paper says,

“These types of crypto-assets are not legal tender, and are not backed by any government or public authority.”

But while being small in size in comparison to the global financial system, the crypto-assets has the potential to raise financial stability concerns and increase the risks such as money laundering faced by banks.

However, crypto assets are still an “immature” asset class because of the lack of standardization and constant evolution. The committee further raised a warning that certain crypto assets have a high degree of volatility and present risks of liquidity, operational, credit, market, terrorist financing, money laundering, legal and reputational risks for banks.

As such, if banks decided to acquire digital currencies or provide related services, they should apply “a conservative prudential treatment to such exposures.”

Prohibiting from Exposure to crypto-assets & Info on Holdings

For the supervisory review process, the BCBS proposes that banks should have a rigorous process to conduct comprehensive due diligence and risk assessment for crypto-asset exposures.

Banks should also inform their supervisory authorities of actual and any planned crypto-asset exposure, the paper says. They need to assure that they have fully assessed the associated risks and how they mitigated them. If not satisfied, supervisors can take appropriate action.

The committee also proposes that banks should disclose “granular” information on crypto-asset holdings on a quarterly basis. The said,

“Any specified treatment would constitute a minimum standard for internationally-active banks. Jurisdictions would be free to apply additional and/or more conservative measures if warranted. As such, jurisdictions that currently prohibit their banks from having any exposures to crypto assets would be deemed compliant with any potential global prudential standard.”

The closing date for comments is March 13, 2020. The Committee will then decide whether to specify a prudent treatment for crypto-assets, issue a consultation paper detailing the proposals and seek further input from stakeholders.