BIS Introduces a Global Standard for Banks with Exposure to Crypto Assets

BIS Introduces a Global Standard for Banks with Exposure to Crypto Assets

The Bank for International Settlements (BIS) has released a report proposing a global standard for banks with cryptocurrency exposure. The framework that endorses a policy allowing banks to hold 2% of their reserves in crypto assets will go into effect by January 1, 2025.

The Group of Central Bank Governors and Heads of Supervision (GHOS), an oversight body of the Basel Committee on Banking Supervision under the Bank for International Settlements (BIS), has endorsed a regulatory standard for financial institutions with exposure to crypto assets. On December 16, the group released a report that seeks to finalise the Committee’s “prudential treatment” and work programme for cryptocurrencies and fiat-backed stablecoins that banks and financial institutions are exposed to.

“The standard will provide a robust and prudent global regulatory framework for internationally active banks’ exposure to crypto assets that promotes responsible innovation while preserving financial stability,” said the BIS in its press release announcing the project.

The GHOS will implement its global standard by January 1, 2025, and has tasked the Basel Committee with supervising adoption and effectiveness of the standard by banks. The report notes that, despite the global banking system’s relatively low direct exposures to cryptocurrencies, there was a need to introduce a “strong global minimum prudential framework” for banks to mitigate risks from digital financial assets. For this purpose the Committee was assigned with the task of assessing bank-related developments in the crypto sector, including those that are stablecoin issuers, custodians of crypto assets and have partnerships with crypto projects. Furthermore, the Committee will work with the Financial Stability Board to ensure that stablecoins are consistently regulated under an international standard.

BIS Introduces a Global Standard for Banks with Exposure to Crypto Assets

The group also endorsed a two-year work program that outlines the “strategic priorities for its policy, supervision and implementation activities”. The Basel Committee will assess emerging risks and vulnerabilities to the global financial system, prioritise ongoing work related to the digitisation of finance, pursue a holistic approach to address climate-related financial risks that can affect the global financial system, and monitor, implement and evaluate the existing standards and guidance under the Basel III framework. The program is developed under the direction of GHOS Chair and Governor of the Bank of Canada, Tiff Macklem, and the Basel Committee Chair and Governor of the Bank of Spain, Pablo Hernandez de cos.

“Today’s endorsement by the GHOS marks an important milestone in developing a global regulatory baseline for mitigating risks to banks from crypto assets. It is important to continue to monitor bank-related developments in crypto asset markets. We remain ready to act further if necessary,” said Tiff Macklem, Chair of the GHOS and Governor of the Bank of Canada.

After concluding its second consultation in June, the Committee proposed a policy allowing banks to maintain 1% of their reserves in crypto assets. Following feedback regarding the policy from various central and commercial banks, the BIS updated its Prudential Treatment of Cryptoasset Exposure report to allow banks to hold at least 2% of their reserves assets in cryptocurrencies.

Currently, the Bank for International Settlements (BIS) is working with central banks on developing CBDCs (central bank digital currency) under its Global Innovation Hub. In September, the banking governance body published results of its multi-jurisdictional CBDC pilot program. The month-long testing phase participated in by the central banks of the United Arab Emirates, Hong Kong, China, and Thailand, as well as 20 commercial banks from the countries, conducted cross-border transactions worth $22 million in their respective CBDCs.

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