Prudential Treatment For Crypto-Assets Discussed12.13.2019
The Basel Committee on Banking Supervision is publishing a discussion paper on the design of a prudential treatment for crypto-assets.
— Bank for International Settlements (@BIS_org) December 12, 2019
The past few years have seen rapid growth in crypto-assets. While the crypto-asset market is still small relative to the size of the global financial system, and banks’ exposures to crypto-assets are currently limited, the absolute size of the market is meaningful and there continue to be rapid developments, with increased attention from a broad range of stakeholders.
As previously indicated, the Committee is of the view that the growth of crypto-assets and related services has the potential to raise financial stability concerns and increase risks faced by banks. Crypto-assets are an immature asset class given the lack of standardisation and constant evolution. Certain crypto-assets have exhibited a high degree of volatility, and present risks for banks, including liquidity, credit, market, operational (including fraud and cyber), money laundering and terrorist financing, and legal and reputation risks. If banks are authorised, and decide, to acquire crypto-assets or provide related services, the Committee is of the view that they should apply a conservative prudential treatment to such exposures, especially for high-risk crypto-assets.
To that end, the Committee is publishing this discussion paper to seek the views of stakeholders on a range of issues related to the prudential regulatory treatment of crypto-assets, including:
- the features and risk characteristics of crypto-assets that should inform the design of a prudential treatment for banks’ crypto-asset exposures; and
- general principles and considerations to guide the design of a prudential treatment of banks’ exposures to crypto-assets, including an illustrative example of potential capital and liquidity requirements for exposures to high-risk crypto-assets.
Should the Committee decide to specify a prudential treatment of crypto-assets, it will issue a consultation paper detailing its proposals and seek further input from stakeholders. Any specified treatment would constitute a minimum standard for internationally active banks. Jurisdictions would be free to apply additional and/or more conservative measures if warranted. As such, jurisdictions that currently prohibit their banks from having any exposures to crypto-assets would be deemed compliant with any potential global prudential standard. More generally, this discussion paper should not be interpreted as an endorsement or support by the Committee for any specific existing or planned crypto-asset.
The Committee welcomes comments by 13 March 2020 on the analyses and ideas set out in this paper from all stakeholders, including academics, banks, central banks, finance ministries, market participants, payment system operators and providers, supervisory authorities, technology companies and the general public.
With Dmitry Kay, Co-head of EM FX Trading, Europe, UBS
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