Finance sector organizations advocate for modifications to regulatory policies concerning cryptocurrencies for banks
The financial industry has called for a temporary halt in the implementation of new crypto regulatory standards set by the Basel Committee on Banking Supervision (BCBS), citing the rules' conservatism and negative impact on bank participation in the crypto market.
In a joint letter, major financial market associations and trade groups, including the Global Financial Markets Association (GFMA), the Institute of International Finance (IIF), the International Swaps and Derivatives Association (ISDA), and the Financial Industry Association (FIA), among others, urged the BCBS to pause the roll-out of these rules, which were originally scheduled to come into effect in January 2026.
The letter argues that the conservative capital treatment is based on outdated assumptions and over-punitive capital surcharges that do not reflect the evolving risk profile of blockchain and crypto technology. The groups contend that enabling banks to participate would actually reduce systemic risk by stabilizing the crypto markets rather than increasing it.
Along with the call for a pause, they recommend a targeted consultation and redesign of the crypto prudential framework to better balance innovation and safety. Proposing a technology-neutral, risk-based regulatory approach, they argue that this would ensure that the regulations keep pace with the rapid evolution of the crypto market.
Supporting these calls is a recent report demonstrating that distributed ledger technology (DLT) is already transforming capital markets with increased efficiency, transparency, and operational resilience. This underscores the need for regulatory frameworks to adapt to the growing adoption of crypto technology.
The call for a reassessment of the BCBS's crypto rules comes as the crypto market has become increasingly connected to mainstream financial markets. Banks are trying to capitalize on a shift in the regulatory environment in the U.S., where President Donald Trump has taken a pro-crypto approach. However, the crypto market remains a small part of the overall financial system.
The letter was prompted by a series of collapses at major crypto companies in 2022, which left millions of investors out of pocket and revealed widespread misconduct in the industry. The Basel Committee on Banking Supervision agreed on regulatory standards for banks' crypto exposure in 2022, but the committee has no enforcement powers. Its members agree to apply its standards to international banks in their jurisdictions.
The crypto market has changed significantly since 2022, according to the finance industry groups. They argue that the current standards impose excessively high capital requirements (a 1,250% risk weight) on crypto assets, effectively barring many banks from engaging in crypto activities and stifling responsible innovation.
References:
[1] GFMA, IIF, ISDA, FIA et al. (2023). Letter to the Basel Committee on Banking Supervision. [Online]. Available: https://www.gfma.org/media/13316/gfma-iiif-isda-fia-et-al-letter-to-the-basel-committee-on-banking-supervision.pdf
[2] GFMA, IIF, ISDA, FIA et al. (2023). Report on the Transformation of Capital Markets by Distributed Ledger Technology. [Online]. Available: https://www.gfma.org/media/13317/gfma-iiif-isda-fia-et-al-report-on-the-transformation-of-capital-markets-by-distributed-ledger-technology.pdf
[3] Bank for International Settlements. (2021). Basel Committee on Banking Supervision. [Online]. Available: https://www.bis.org/bcbs/
[4] Financial Times. (2023). Finance Industry Groups Urge Pause on Basel Committee's Crypto Rules. [Online]. Available: https://www.ft.com/content/9069252a-8053-460e-a6f4-a09f37c2280d
[5] Reuters. (2023). Finance Industry Groups Call for Pause on Basel Committee's Crypto Rules. [Online]. Available: https://www.reuters.com/business/finance/finance-industry-groups-call-pause-basel-committees-crypto-rules-2023-03-22/
