Int’l Regulator Basel Committee Calls for Prudent Rules for Crypto

The Basel Committee — which includes banking regulators from the United States, Europe and Japan — published its report on the prudential treatment of crypto assets. The study was first announced in November, as Cointelegraph reported at the time.

Furthermore, BCBS expresses the idea that — if authorized — banks that decide to acquire crypto assets or provide related services should use prudence, especially for high-risk tokens. The document also specifies that exposure to cryptocurrency can be direct when the bank holds the assets or indirect when, for instance, the bank owns crypto derivatives.

Global banking regulator Basel Committee on Banking Supervision (BCBS) calls for a conservative prudential treatment framework for crypto assets.

In the document, the regulator claims that the growth of cryptocurrencies and related services can negatively affect financial stability and increase the risks faced by banks. The report reads:

“Crypto-assets are an immature asset class given the lack of standardisation and constant evolution. Certain crypto-assets have exhibited a high degree of volatility, and present risks for banks, including liquidity risk; credit risk; market risk; operational risk (including fraud and cyber risks); money laundering and terrorist financing risk; and legal and reputation risks.”

“Conservative prudential treatment” advised

The Basel Committee recommends that crypto assets should not be accepted as credit risk mitigation collateral, high-quality liquid assets for liquidity coverage ratio or net stable funding ratio. Furthermore, according to the regulator, crypto assets held in the trading book should be subject to a full deduction for market risk and credit valuation. The paper reads:

“This treatment reflects the high degree of uncertainty about the positive realisable value of crypto-assets in times of stress.”

The paper specifies that central bank digital currencies are outside its scope and that stablecoins “warrant further assessment and elaboration before specifying a prudential treatment.”

The BCBS is a committee of banking supervisory authorities that was established by the central bank governors of the Group of Ten countries in 1974.

The Basel Committee has long shown that it is wary of crypto assets. As Cointelegraph reported in March, at the time the regulator issued a warning statement on cryptocurrencies.

Japan’s Financial Watchdog to Set Low Leverage Cap for Crypto Margin Traders

Japan’s top financial regulator plans to reduce the risk to cryptocurrency margin traders by cutting the permitted leverage to two times the deposit.

The Financial Services Agency will impose the new rule in a revision to the Financial Instruments and Exchange Act expected in spring, Japan Times sources said in a report on Saturday.

While the nation’s industry already follows a self-imposed rule setting a maximum of four-times leverage, the watchdog aims to halve that due to the volatility of the crypto markets, the article says.

The 2x cap was determined by analyzing historical price movements, as well as cryptocurrency regulations in Europe and the U.S., the sources told the Times. The decision also follows talks with the the Japan Virtual Currency Exchange Association – the country’s self-regulatory body.

Margin trading is trading assets using borrowed funds, with leverage being the multiple of the initial deposit that can be borrowed. Some platforms in the crypto space offer leverage of well over 100x.

Noted economist and crypto critic Nouriel Roubini has previously hit out at exchanges offering such high levels of leverage saying they expose traders to too much risk.

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