By January 2025  Global Crypto Banking Rules: Endorsed by BCBS

The Basel Committee on Banking Supervision (BCBS) has supported its global crypto banking rules for execution by January 1, 2025, according to an email statement on December 16. 

The committee provided an accompanying document, which is well known as the primary global standard setter for the prudential regulation of banks, recommending that the bank’s exposure of several crypto assets must not surpass 2% and should normally be lower than 1%. 

These specific crypto assets are tokenized traditional assets containing unbacked crypto assets, stablecoins and non-fungible tokens that don’t make them eligible to meet classification conditions. 

However, the following mentioned assets that do not meet the classification condition “are subject to capital requirements based on the risk weights of underlying exposures as set out in the existing Basel framework.”

Earlier, a group of eight traditional finance lobby groups stated to the committee proposing that the 1% exposure concept can be confining and can hinder innovation using blockchain technology. 

Tiff Macklem, the chair of GHOS and the Governor of the Bank of Canada, stated, “Today’s endorsement by the GHOS (Group of Central Bank Governors and Heads of Supervision) marks an important milestone in developing a global regulatory baseline for mitigating risks to banks from crypto assets.”

The committee put forward that the classification condition includes ensuring that crypto passes the redemption risk and basis risk tests. “The redemption risk test is to ensure that the reserve assets are sufficient to enable the crypto assets to be redeemable at all times,” the Basel report said.

Meanwhile, the basis risk test “aims to ensure that the holder of a crypto asset can sell it in the market for an amount that closely tracks the peg value,” the report added.

Regulating authorities have taken steps to regulate the crypto sector, which is essential to take today. In a year, millions of dollars were wiped out after the Terra Luna Fallout and FTX- Alameda drama. 

The report added that the set-out standards would be added to the consolidated Basel Framework very soon.