On 30 June 2022, the Basel Committee on Banking Supervision (Basel Committee) issued its second public consultation paper on the prudential treatment of banks’ cryptoasset exposures.
In the second consultation paper the Basel Committee continues with the basic structure outlined in its first consultation by dividing cryptoassets into two broad groups:
- Group 1 includes those eligible for treatment under the existing Basel Framework with some modifications.
- Group 2 includes unbacked cryptoasset and stablecoins with ineffective stabilisation mechanisms, which are subject to a new conservative prudential treatment.
In this latest consultation paper the Basel Committee provides more detail on the proposed standard and includes new elements such as:
- Infrastructure risk add-on: The introduction of an add-on to risk-weighted assets to cover infrastructure risk for all Group 1 cryptoassets.
- Recognition of hedging for certain Group 2 cryptoassets: Group 2 cryptoassets that meet a set of hedging recognition criteria (ie Group 2a) may be subject to modified versions of the market risk requirements, which permit a limited degree of hedge recognition in the calculation of a bank’s net exposure.
- Removal of accounting classification link: The capital requirements that will apply to cryptoassets have been delinked from their classification as tangible or intangible assets under the accounting standards.
- Operational risk clarifications: The proposal relating to operational risk and resilience has been clarified to delineate more clearly between risks that would be covered by the operational risk framework, and those that should instead be captured in the credit and market risk frameworks.
- Detail on application of liquidity rules: Additional detail added to specify the application of the liquidity risk requirements, including the treatment of crypto liabilities (i.e. bank issued cryptoassets).
- Group 2 exposure limit. Introduction of an exposure limit, which will initially limit a bank’s total exposures to Group 2 cryptoassets to 1% of Tier 1 capital.
The deadline for comments on the consultation paper is 30 September 2022.