Ten trade associations call for revisions to the BCBS cryptoasset standard, citing inconsistent implementation and arguing that it will hinder DLT use cases.
A group of ten financial industry associations has jointly written to the Basel Committee on Banking Supervision (BCBS) recommending further consultation and targeted revisions to its cryptoasset standard.
The standard was issued by the BCBS in December 2022, setting out risk weights and capital add-ons banks would have to apply to their crypto exposures. Further consultative documents related to the standard were issued in October 2023 and December 2023.
The associations, including the Institute of International Finance (IIF), Global Financial Markets Association (GFMA), International Capital Market Association (ICMA), and Global Digital Finance (GDF), argue that a revised implementation date would help ensure consistent implementation and preserve financial stability.
The letter highlights market and regulatory developments, including uneven implementation of the standard across jurisdictions, the expansion of DLT use cases involving traditional assets, and the increasing size and significance of the cryptoasset market.
The associations recommend that the BCBS consider potential redesign and recalibration in the following areas:
- Treatment of cryptoassets using public permissionless and permissioned blockchains as Group 1 cryptoassets: The associations argue that blockchain network assessment should be case-by-case and risk-based, and that existing governance and control frameworks can manage the risks. They believe the current standard hinders DLT market development and causes regulatory risk to cluster outside the regulatory perimeter.
- Treatment of market risk and counterparty credit risk arising from Group 2a linked financial instruments: The associations suggest refinements to the market risk treatment of Group 2a instruments (like ETFs and derivatives), particularly regarding when these instruments should be considered to have the same exchange dimension and when transactions are accepted as having no maturity mismatch.
- Risk weighting for Group 2b cryptoassets: The associations argue that the 1250% risk weight on gross exposure is effectively an activity ban and may lead to higher levels of systemic risk. They believe this treatment is particularly excessive in relation to the market risk on positions in Group 2 cryptoassets that are economically market risk-flat or otherwise effectively hedged.
- Hedging recognition criteria: The associations state that the current criteria are based on pre-December 2022 data and provide an unbalanced view of the current status of cryptoassets. They believe the criteria are too restrictive and unique within the Basel Framework.
- Group 2 cryptoassets exposure limit: The associations propose a modified exposure limit calculated on a net basis, including disclosure to supervisors of gross positions. They argue that the current approach of recognising exposures on a gross basis is inconsistent with the principles underlying the hedging criteria.
The letter states that the current standard could lead to unintended adverse consequences for market structure and oversight, potentially increasing indirect exposure to the growing cryptoasset market through relationships with non-bank providers.
The associations also plan to provide a market update on use cases in June 2025 and have offered to organise regional roundtables with BCBS members to discuss their recommendations.
The letter is published in full here.