NEW STANDARDS SET BY BASEL COMMITTEE TO BE INTRODUCED BY 2025

New standards approved by the Basel Committee on Crypto to be implemented by 2025, about a bank’s exposure to certain crypto assets.

The Basel Committee, the main global standard for prudential regulation of banks, has suggested that a bank’s exposure to certain crypto assets should not exceed 2 percent and should generally be less than 1 percent. Through a statement, it was required to implement this percentage by Jan. 1, 2025.

Crypto assets covered by the new framework include traditional tokenized assets, including non-fungible tokens, stablecoins, and unsecured crypto assets that do not meet the classification conditions. Meanwhile, assets on the previous list that meet the criteria “are subject to capital requirements based on the risk weights of the underlying exposures, as set out in the current Basel framework.”

These new determinations were arrived at in part due to a request from a very large group in traditional finance that had written to the commission suggesting that a 1 percent cap for banks would be too restrictive and could frustrate innovations using new technologies.

In order for a cryptocurrency to be included among a bank’s assets, it must pass a redemption risk test and a basis risk test.

The redemption risk test is intended to ensure that reserve assets are sufficient to allow cryptocurrencies to be redeemable at any time, while the basis risk test, on the other hand, “aims to ensure that the holder of a cryptocurrency can sell it in the market for an amount that closely tracks the value of the peg,” the report says.

The rationale for these regulations undoubtedly turns out to be to avoid unfortunate situations such as those experienced recently although it must be said that, on the other hand, Banks believe that the risks associated with new technologies are already covered by existing risk management systems embedded in an extremely prudential framework.

According to data recently published by the Basel Committee on Banking Supervision, cryptocurrencies held by banks may be only 0.01 percent of total risk exposure, and the world’s largest banks are exposed to about €9.4 billion ($9 billion) in cryptocurrency assets.