Finance associations call for overhaul of crypto rules

Recommendations include revising classification rules, recognising stablecoins, and updating risk weights.

A coalition of leading banking and financial industry associations has formally requested that the Basel Committee on Banking Supervision (BCBS) temporarily halt the implementation of the Cryptoasset Exposures chapter (SCO60) of the Basel framework.

In a letter to the BCBS, the associations argued that the existing Cryptoasset Standard, adopted in 2022, now imposes overly restrictive and punitive capital requirements that make meaningful bank participation in crypto markets uneconomical.

They warned that the current framework risks pushing crypto activity outside the regulated banking sector, limiting oversight and potentially undermining financial stability.

The coalition includes the Global Financial Markets Association, the Institute of International Finance, the International Swaps and Derivatives Association, the Global Policy Futures Industry Association, the Global Blockchain Business Council, the International Regulatory Policy Bank Policy Institute, the Policy Research Financial Services Forum, and Global Digital Finance.

Banks’ involvement in cryptoasset markets promotes safety, soundness, and consumer protection, the associations stated. “The prudential framework for those markets should not discourage participation by imposing overly punitive capital requirements that are inconsistent with actual risks.”

The associations specifically criticised the treatment of Group 1 and Group 2 cryptoassets under SCO60, highlighting the “cliff-effect” when assets fail certain qualification criteria.

They argued that many cryptoassets classified as Group 2 have risk profiles closer to Group 1 and should be treated accordingly under a proportional, risk-sensitive framework.

They recommended removing distinctions between permissioned and permissionless ledgers for Group 1 eligibility, revising classification rules to focus on legal enforceability and settlement finality, recognising regulated stablecoins and certain cryptoassets as eligible collateral.

Additionally, they also suggested updating risk weights and exposure limits for Group 2 cryptoassets, and allowing banks to use internal market-risk and counterparty-risk models.

The groups highlighted the growth of non-bank crypto participants, including fintech companies and digital-native platforms, and argued that banks should be able to compete on equal footing to support market integrity.

They also noted that advancements in risk mitigation and regulatory frameworks have enhanced the safety of bank participation in crypto markets.

The BCBS previously consulted on the Cryptoasset Standard in December 2023, leading to technical amendments and clarifications finalized in July 2024.