All about Basel Committee’s oversight body and its latest on crypto regulations

• The Basel Committee has called for bank regulation on crypto
• FTX’s downfall has raised concerns for crypto regulation globally

The Group of Governors and Heads of Supervision overseeing the Basel Committee on Banking Supervision have called for improved financial standards. They seek to limit the exposure of banks to crypto to manage the risks associated with this volatile commodity.

GHOS calls for prudential standards

According to a report published by Bloomberg, the GHOS endorsed global prudential standards for banks to limit their exposure to crypto. As per the laid-out standards, crypto assets are categorized into two groups. One group fully met a set of predetermined conditions and another was for tokens that met none of the conditions. 

The crypto assets that met the conditions will be subject to the capital requirements established in the Basel Committee’s existing framework. As for the other group, a bank’s total exposure will be limited to a maximum of 2% of Tier 1 capital, while less than 1% was the recommended level of exposure. 

Tiff Macklem, the Governor of the Bank of Canada, believed that the standards set by the GHOS will do well to mitigate the risks associated with digital tokens. Governor Macklem is also the Chairperson of the GHOS. 

The Basel Committee on Banking Supervision

The Basel Committee on Banking Supervision is an organization made up of 45 members, comprising central banks and bank supervisors from 28 jurisdictions. It is the primary global standard setter for the prudential regulation of banks. Additionally, it provides a forum for regular cooperation on banking supervisory matters.

While the committee does not enjoy formal authority over banks due to their decisions having no legal force, the members work together to achieve the mandate set out by it. The oversight of this committee rests with The Group of Governors and Heads of Supervision (GHOS). This group sets out the general agenda and approves the committee’s charters. 

Crypto market downturn spooks TradFi players

The downfall of FTX has had a domino effect on the crypto market. It has culminated in traditional finance institutions distancing themselves from the broader crypto industry. The exodus of accounting firms from the crypto scene is evidence of the same.

Mazars and Armanino, the auditors for Binance and FTX respectively, have announced that they will no longer cater to crypto firms. 

The US Financial Stability Oversight Council revealed their annual report last week. The report raised concerns about the entanglement between crypto and TradeFi. It also discussed how the imbroglio could put the broader financial infrastructure at risk.