Banks need to disclose their crypto exposure: Basel Committee

• These standards outlined how banks should manage their exposure to cryptocurrency assets.
• This was a noteworthy step towards creating a more transparent and accountable environment for the cryptocurrency activities of financial institutions.

The Basel Committee on Banking Supervision, part of the Bank for International Settlements (BIS), released a consultation paper on 17 October on regulating the cryptocurrency exposure of banks.

This proposal seeks to make it voluntary for banks to disclose their cryptocurrency exposure.

The Basel Committee is composed of central banks and financial authorities from 28 jurisdictions. It serves as a forum for regulatory collaboration concerning banking supervisory matters.

The final prudential standard issued in December 2022 detailed the disclosure guidelines, leading to the development of the consultation paper. These standards outline how banks should manage their exposure to cryptocurrency assets.

The primary objective of this consultation paper is to establish a uniform “disclosure table and set of templates” that banks must adhere to when reporting their crypto-asset exposures. After collecting feedback, the committee will publish the outcomes on its official website.

To ensure a comprehensive and well-informed decision-making process, the Basel Committee has opened the proposal for public commentary until January 31, 2024. Following this feedback collection period, the outcomes will be made available on the committee’s official website.

Move to mark major shift in crypto oversight

The proposed regulations introduce several key elements that banks must comply with when disclosing their crypto exposure. These include quantitative data related to their crypto-asset exposures and the associated capital and liquidity requirements.

Furthermore, banks must also provide qualitative information about their activities related to cryptocurrencies.

Another significant aspect of the proposed regulations is the requirement for banks to divulge information concerning the accounting classifications of their exposure to cryptocurrency assets and liabilities.

The committee emphasizes that adopting a standardized disclosure format aims to promote market discipline. It also seeks to reduce information disparities between banks and market participants.

This is a noteworthy step towards creating a more transparent and accountable environment for the cryptocurrency activities of financial institutions.

Standardized disclosure requirements will hold banks accountable for their involvement in the cryptocurrency space, fostering a more transparent and secure financial sector.

The Basel Committee’s interest in crypto assets and their impact on banks’ exposures was evident in its review of the subject back in June. The committee did not delve deeply into the topic at that time.

However, it did mention its focus on permissionless blockchains and the eligibility criteria for “Group 1” stablecoins. This earlier exploration set the stage for the comprehensive disclosure guidelines proposed in the recent consultation paper.

The BIS has been actively engaged in discussions and consultations surrounding cryptocurrencies. It has been closely examining the regulatory aspects of decentralized technologies.

The BIS recently published a concept designed to create a system for tracking the international flow of cryptocurrencies. This was done in a collaborative effort with several European central banks.