Trade bodies back robust regulatory oversight of crypto-assets

A group of eight trade associations has published a response to the Basel Committee on Banking Supervision’s (BCBS) second consultation on the prudential treatment of crypo asset exposures.

Their aim is raise industry understanding of the risks associated with private digital assets to promote a safer environment for trading and safekeeping crypto assets as well as more efficient and more inclusive.

The BCBS Second Consultation defines crypto assets as “private digital assets that depend primarily on cryptography and distributed ledger or similar technology”.

- Advertisement -

The trade groups are Global Financial Markets Association (GFMA), Futures Industry Association (FIA), Institute of International Finance (IIF), International Capital Markets Association, International Swaps and Derivatives Association (ISDA), International Securities Lending Association (ISLA), Bank Policy Institute (BPI) and Financial Services Forum (FSF).

The associations note they support the design of a robust crypto asset exposure framework which includes liquidity regulation, sound risk management and supervisory oversight.

The groups, advocate a “suitably conservative but appropriately structured and designed regulatory framework,” which are goals closely aligned with the objectives of the Basel Committee.

They also believe that the nascent market in crypto assets will benefit from advances in distributed ledger technology (DLT), cryptography and other technology innovation, delivering greater transparency, efficiency and speed to trading and post-trade processes.

However, they have also identified some features of the BCBS Second Consultation that might impair banks’ ability to utilise DLT to provide financial intermediation and associated banking functions.

They recommendations designed to promote financial stability and greater understanding while avoiding overly restrictive limits to innovation.

For example, they said service providers have the benefits provided by DLT, delivering speed and transparency in transaction processing, along with ability to swap and record assets and cash simultaneously.

This offers concrete benefits in enabling faster and more accurate trade settlement, delivering a corresponding reduction in counterparty, settlement and liquidity risk, while bringing greater efficiency to collateral management.

Recent market volatility has highlighted the importance of managing financial activities, including crypto asset trading, within a well-managed regulatory environment and prudential framework.

They adhere to the position the Basel Committee and other global standards bodies which apply the “same risk, same activity, same treatment” principle. This implies that a cryptoasset that delivers equivalent economic functions and presents the same risks as a traditional asset should be subject to the same capital, liquidity and other requirements as the traditional asset.

©Markets Media Europe 2022

Geopolitical risks and inflation flagged as top risks to financial industry

Perhaps unsurprisingly, geopolitical risks, trade tensions, inflation and cyber risk were flagged as the...

Institutional investors sharpen their focus on belt tightening

Saving money is a key priority when pension funds, insurers and corporates are assessing...

BIS warns of $80 trillion of hidden FX swap debt

Pension funds and other non-bank financial firms currently have over $80 trillion of hidden,...

Geopolitical risks and inflation flagged as top risks to financial industry

Perhaps unsurprisingly, geopolitical risks, trade tensions, inflation and cyber risk were flagged as the...

Institutional investors sharpen their focus on belt tightening

Saving money is a key priority when pension funds, insurers and corporates are assessing...

BIS warns of $80 trillion of hidden FX swap debt

Pension funds and other non-bank financial firms currently have over $80 trillion of hidden,...