Financial industry warns of ‘unnecessarily restrictive’ crypto capital rules
Newsletter: Not covered
The most important market trends and how the best minds on Wall Street are responding to them. Delivered every day of the week.
The global financial industry has urged regulators to refrain from imposing strict capital rules on digital assets, warning that these requirements will drive underground activity and rob banks of the benefits of technology.
Trade groups representing banks, asset managers and the blockchain industry told the Basel Committee on Banking Supervision that the authorities’ proposals would make it too expensive for banks to participate in the growing crypto industry. fast and related technologies.
In a letter sent on Monday and seen by the Financial Times, the groups said the proposals to cover the $ 2 billion crypto industry were “so too conservative and simplistic that they would actually prevent banks from participating. in the crypto-asset markets â.
The response comes as banks attempt to balance their clients ‘growing interest in trading and holding crypto assets with regulators’ crackdown on the digital asset industry.
The Basel committee, the world’s most powerful banking standards body, proposed in June that cryptocurrencies be subject to the strictest capital requirements possible, making it costly for banks to trade digital assets.
Global regulators have stepped up their scrutiny of the rapidly evolving digital asset sector this year as investor interest has skyrocketed, and some argue that acceptance by traditional financial institutions will help curb the industry’s excesses. cryptography such as extreme market volatility and consumer risk.
The letter was signed by trade groups including the Global Financial Markets Association, the Institute of International Finance, the International Swaps and Derivatives Association, the Financial Services Forum and the Digital Chamber of Commerce, which represents the banking industry. blockchain.
âToday, a lot of activity is outside the regulated sector. We believe that everyone will be better off if regulated banks can meaningfully participate in these markets and provide access to their customers, âsaid Allison Parent, Executive Director of GFMA, which represents banks around the world.
The Basel committee proposed two categories of capital requirements for banks holding cryptocurrencies. Digital assets that looked more like conventional securities, including stock tokens and fully reserved coins, could benefit from a modified version of the existing rules on minimum capital standards for banks.
The rest, including bitcoin and ethereum, would fall under a “conservative” prudential regime that effectively requires banks to hold at least $ 1 of collateral for every $ 1 of cryptocurrency.
The groups said the distinction does not recognize the diversity of crypto assets and should tie the capital treatment of crypto assets to their risk; the rules should also distinguish between the risks that banks took in holding the assets and trading them, they suggested.
Basel also suggested that stablecoins – cryptocurrencies tied to traditional assets such as currencies – would also qualify under existing rules if they were fully backed by reserves at all times. The groups described the Basel approach as “unnecessarily restrictive” and suggested that the underlying asset has more leeway to move in value before the capital rules come into effect.
For the latest fintech news and opinions from FT’s correspondent network around the world, sign up for our weekly newsletter #fintechFT
Industry groups urged the regulator to act quickly, saying there was “some urgency in ensuring supervised banks can participate” given the rapidly changing crypto markets outside the scope of application of current regulations.
State Street and Citigroup are among the banks that have indicated they aim to provide more crypto services to clients, while some of Wall Street’s biggest trading companies have recently stepped up their push into the crypto markets.