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Central Banks to Enforce Standard on Banks’ Exposure to Crypto in 2025

by Solomon Oladipupo
  • The standard will permit 2% crypto reserve exposure among banks.
  • BIS says the global banking system's direct exposure to crypto "remains relatively low."
Bank for International Settlements
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The Group of Central Bank Governors and Head of Supervision (GHOS) of the Bank for International Settlements (BIS) has endorsed a global prudential standard for banks’ exposure to crypto assets. In addition, the Group has decided on January 1, 2025, as the implementation date for the standard.

The standard was developed by the Basel Committee on Banking Supervision, the BIS’ primary global standard setter for the prudential regulation of banks, the BIS said in a statement released on Friday.

“Unbacked cryptoassets and stablecoins with ineffective stabilization mechanisms will be subject to conservative prudential treatment. The standard will provide a robust and prudent global regulatory framework for internationally active banks' exposures to cryptoassets that promotes responsible innovation while preserving financial stability," BIS explained in the statement.

Central Banks to Push for Low Exposure to Crypto?

According to the BIS, the direct exposure of the global banking system to crypto assets “remains relatively low.” However, the international financial institution believes that recent events have necessitated having “a strong global minimum prudential framework for internationally active banks to mitigate risks from cryptoassets.”

Therefore, BIS noted that the GHOS has tasked the Basel Committee with continuously assessing bank-related developments in cryptoasset markets, including the role of banks as stablecoin issuers, custodians of cryptoassets and as broader potential channels of interconnections.

“Today's endorsement by the GHOS marks an important milestone in developing a global regulatory baseline for mitigating risks to banks from cryptoassets. It is important to continue to monitor bank-related developments in cryptoasset markets. We remain ready to act further if necessary,” Tiff Macklem, the Chair of the GHOS and Governor of the Bank of Canada, mentioned.

Crypto in a New Era for Central Banks

According to the BIS, the standard will be incorporated as a new chapter of the consolidated Basel Framework (SCO60: Cryptoasset exposures). The standard accommodates feedback from BIS' second consultation on the prudential treatment of banks’ exposure to cryptoassets carried out by the Basel Committee in June 2022.

Under the new standard, banks will be required to classify cryptoassets into Group 1 and Group 2, with Group 1 cryptoassets including digital assets such as tokenized traditional assets and stablecoins. However, Group 2 cryptoassets “pose additional and higher risks” compared to those in Group 1 and include assets such as unbacked cryptoassets.

“A bank’s total exposure to Group 2 cryptoassets must not exceed 2% of the bank’s Tier 1 capital and should generally be lower than 1%,” the standard says.

Furthermore, the standard prescribes a redemption risk test and supervision and regulation requirements for cryptoassets.

“This test and requirement must be met for stablecoins to be eligible for inclusion in Group 1. They seek to ensure that only stablecoins issued by supervised and regulated entities that have robust redemption rights and governance are eligible for inclusion,” the standard notes.

The Group of Central Bank Governors and Head of Supervision (GHOS) of the Bank for International Settlements (BIS) has endorsed a global prudential standard for banks’ exposure to crypto assets. In addition, the Group has decided on January 1, 2025, as the implementation date for the standard.

The standard was developed by the Basel Committee on Banking Supervision, the BIS’ primary global standard setter for the prudential regulation of banks, the BIS said in a statement released on Friday.

“Unbacked cryptoassets and stablecoins with ineffective stabilization mechanisms will be subject to conservative prudential treatment. The standard will provide a robust and prudent global regulatory framework for internationally active banks' exposures to cryptoassets that promotes responsible innovation while preserving financial stability," BIS explained in the statement.

Central Banks to Push for Low Exposure to Crypto?

According to the BIS, the direct exposure of the global banking system to crypto assets “remains relatively low.” However, the international financial institution believes that recent events have necessitated having “a strong global minimum prudential framework for internationally active banks to mitigate risks from cryptoassets.”

Therefore, BIS noted that the GHOS has tasked the Basel Committee with continuously assessing bank-related developments in cryptoasset markets, including the role of banks as stablecoin issuers, custodians of cryptoassets and as broader potential channels of interconnections.

“Today's endorsement by the GHOS marks an important milestone in developing a global regulatory baseline for mitigating risks to banks from cryptoassets. It is important to continue to monitor bank-related developments in cryptoasset markets. We remain ready to act further if necessary,” Tiff Macklem, the Chair of the GHOS and Governor of the Bank of Canada, mentioned.

Crypto in a New Era for Central Banks

According to the BIS, the standard will be incorporated as a new chapter of the consolidated Basel Framework (SCO60: Cryptoasset exposures). The standard accommodates feedback from BIS' second consultation on the prudential treatment of banks’ exposure to cryptoassets carried out by the Basel Committee in June 2022.

Under the new standard, banks will be required to classify cryptoassets into Group 1 and Group 2, with Group 1 cryptoassets including digital assets such as tokenized traditional assets and stablecoins. However, Group 2 cryptoassets “pose additional and higher risks” compared to those in Group 1 and include assets such as unbacked cryptoassets.

“A bank’s total exposure to Group 2 cryptoassets must not exceed 2% of the bank’s Tier 1 capital and should generally be lower than 1%,” the standard says.

Furthermore, the standard prescribes a redemption risk test and supervision and regulation requirements for cryptoassets.

“This test and requirement must be met for stablecoins to be eligible for inclusion in Group 1. They seek to ensure that only stablecoins issued by supervised and regulated entities that have robust redemption rights and governance are eligible for inclusion,” the standard notes.

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