Basel Committee Appoves Global Crypto Banking Rules to Be Implemented by 2025

The Basel Committee on Banking Supervision (BCBS) has endorsed its global crypto banking rules for implementation by Jan. 1, 2025, according to an emailed statement on Friday.

An accompanying document by the committee, which is the primary global standard setter for the prudential regulation of banks, suggested that a bank's exposure to certain crypto assets must not exceed 2% and should generally be lower than 1%. These particular assets are tokenized traditional assets including non-fungible tokens, stablecoins and unbacked crypto assets that don't meet classification conditions. Meanwhile, those assets from the list above that do meet the criteria "are subject to capital requirements based on the risk weights of underlying exposures as set out in the existing Basel Framework."

"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," said Tiff Macklem, chair of the GHOS, the oversight body of the committee.

"The Committee's standard on cryptoasset is a further example of our commitment, willingness and ability to act in a globally coordinated way to mitigate emerging financial stability risks. The Committee's work programme for 2023–24 endorsed by GHOS today seeks to further strengthen the regulation, supervision and practices of banks worldwide. In particular, it focuses on emerging risks, digitalisation, climate-related financial risks and monitoring and implementing Basel III," said Pablo Hernández de Cos, Chair of the Basel Committee and Governor of the Bank of Spain.

The classification conditions the committee have set out include ensuring crypto passes a redemption risk test and basis risk test. "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 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 said.

Regulators have taken a cautious approach to regulating the crypto sector, which has been extremely volatile lately. Billions of dollars were wiped out of the crypto market within a year after the fall of Terra, FTX and their related companies and tokens.

The crypto standards the committee set out will be added into the consolidated Basel Framework shortly, the report said. Whether or not these rules are applied will be up to individual jurisdictions.