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Basel Committee Exploring Cryptoasset Regulation For Banks

The Basel Committee on Banking Supervision is looking for input on its preliminary ideas as to how the exposure of banks to digital assets should be treated, according to a Thursday (June 10) press release.

The proposed treatment categorizes digital assets as Group 1 cryptoassets, which encompass some tokenized traditional assets and stablecoins, and Group 2 cryptoassets. Bitcoin is cited as an example of a Group 2 cryptoasset.

While Group 1 cryptoassets are eligible for treatment under the current Basel Framework with “some modifications and additional guidance” under the proposal, Group 2 cryptoassets would face a “new conservative prudential treatment” as they “pose additional and higher risks,” according to the release. Central bank digital currencies (CBDCs) are not included in the realm of the consultation.

“Given the rapidly evolving nature of this asset class, the Committee believes that policy development for cryptoasset exposures is likely to involve more than one consultation. This initial public consultation, which follows a discussion paper published in December 2019, will allow further work to continue, with the additional benefit of incorporating feedback from external stakeholders,” the committee said in the release.

The committee is accepting feedback on the proposals through a web form, and says ideas should be provided by September 10, 2021. Each submission will be posted on the Bank for International Settlements website unless the respondent asks that they be kept private.

The news comes as former Commodity Futures Trading Commission Chairman Timothy Massad told CNBC that a regulatory structure is needed for stablecoins such as tether. “We need a better framework of regulation for tether and other stablecoins,” Massad said. “We need a better framework so we can be sure there can’t be a run on something like this.”

However, Hester Peirce, a U.S. Securities and Exchange Commission (SEC) commissioner, cautioned that strict regulations surrounding digital currency could backfire by discouraging possible investors. “I am concerned that the initial reaction of a regulator is always to say ‘I want to grab hold of this and make it like the markets I already regulate,’” Peirce recently told the Financial Times. “I am not sure that’s going to be great for innovation.”

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