The regulations that will govern internationally active banks that offer crypto investment services to customers will likely be ready by the end of the year.
The Group of Central Bank Governors and Heads of Supervision (GHOS) confirmed the upcoming regulation on Tuesday, noting that it recently gave the Basel Committee on Banking Supervision (BCBS) the end of this year as the deadline to finalize the law.
Regulators Target End of Year
The regulation, which is part of the Basel III regulatory framework, would mandate international banks who offer volatile digital assets (such as cryptocurrencies) investment services to their customers to set aside funds to cover losses that may be incurred from these investments. The funds to be set aside should be equal to the value of the total assets invested.
According to GHOS, the Basel Committee has between now and the end of 2022 to round up this regulation because publishing the regulation as soon as possible would hasten its implementation.
“On crypto assets, members reiterated the importance of designing a robust and prudent regulatory framework for banks’ exposure to crypto assets that promote responsible innovation while preserving financial stability. The GHOS tasked the committee with finalizing such a framework around the end of this year.”
Made up of an internationally-agreed set of rules that international banks must follow, the Basel III regulatory framework was initiated several years back. It is designed to reduce risks within the international banking sector by requiring banks that provide cross-border banking services to maintain certain leverage ratios and keep certain levels of reserve capital on hand.
A crypto-related rule for international banks was included in the framework mid-last year. The regulation has two parts. The second part is where these banks having a reasonable amount of capital to back crypto investments come in.
Crypto Volatility
The committee proposed that highly volatile cryptocurrencies whose value is not linked to any fiat currency be given a “conservative prudential treatment” and placed at a 1250% risk weighting.
As a result, internationally active banks who decide to offer their customers services that involve investing in cryptocurrencies that fall under that category must hold capital that is equal in value to the original investment.
