Global trade associations caution BCBS against "overly conservative" cryptoasset regulation

The Global Financial Markets Association, the Financial Services Forum, FIA, the Institute of International Finance, ISDA and the Chamber of Digital Commerce (collectively, the "Associations") offered recommendations to the Basel Committee on Banking Supervision ("BCBS") on the design of a prudential framework for the treatment of cryptoasset exposures.

In a comment letter in response to a BCBS consultation on the treatment of cryptoassets, the Associations recommended that the BCBS use the existing international prudential framework to (i) allow for the consistent cross-jurisdictional implementation of a "same risk, same activity, same treatment" policy, (ii) prevent additional regulatory complexity through utilizing an existing "technology-neutral" approach, and (iii) bolster existing principles of treating capitalizing, banking and trading book risks differently. The Associations recommended separating cryptoassets into two groups:

  • Group 1 would include certain tokenized traditional assets and stablecoins that may be regulated under the existing Basel III prudential framework; and

  • Group 2 would include Bitcoin, as well as lesser-known and more volatile cryptoassets, that would be regulated pursuant to a new "conservative" regulatory treatment.

The Associations argued that an overly conservative regulatory approach to cryptoassets significantly impedes technological advancements in bank-developed market structures and discourages the conduct of cryptoasset activities subject to regulatory oversight.

The Associations asserted that the benefits of leveraging an existing prudential framework include the prevention of a fragmented regulatory treatment and limit the potential for risk being concentrated "outside a regulatory perimeter." The Associations stated that their suggested revisions of the BCBS consultation would, among other things, (i) promote the technological benefits stemming from distributed ledger technology use, which underpins cryptoassets, (ii) facilitate regulated banks' engagement in the cryptoasset markets, and (iii) level the global regulatory "playing field."

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