The Basel Committee Plans to Consult on Revisions to Classification Criteria for Stablecoins

The Basel Committee, a prominent global standard-setter for banks, has announced its intention to seek public input on potential revisions to its classification criteria for stablecoins. This news comes in the wake of the committee’s review of elements of the prudential standard for banks’ exposure to cryptocurrencies, which was published in December of last year.

Regulators around the world have been diligently working to enhance supervision of the cryptocurrency market and alleviate the risks associated with banks’ involvement with private digital assets. The recent collapses of Silvergate Bank and Silicon Valley Bank, two financial institutions with ties to the crypto industry, have underscored the need for more stringent scrutiny of the sector.

The Basel Committee specifically aims to consult on the criteria used to assess the risk level of crypto assets. In particular, it seeks to solicit feedback on potential changes to the classification criteria for stablecoins, which fall under the group 1b regulatory treatment. Stablecoins are cryptocurrencies with effective stabilization mechanisms, and their risk assessment and regulatory treatment are of paramount importance.

The committee’s previous report, released in December, categorized crypto assets into two groups for risk treatment. Group one included cryptos that met all the classification conditions and were subject to standard capital requirements. On the other hand, group two encompassed assets deemed riskier, such as bitcoin (BTC), and the committee proposed imposing limits on banks’ exposure to these assets. Notably, the report emphasized the risks associated with crypto assets utilizing permissionless blockchains, stating that these risks could not be sufficiently mitigated at present.

In addition to reviewing stablecoin classification criteria, the Basel Committee will continue to monitor banks’ custody activities relating to cryptocurrencies. It remains committed to assessing whether further action is necessary in this area.

The news of the Basel Committee’s plans to consult on stablecoins classification criteria is yet another indication of the growing efforts by global regulators to enhance oversight and mitigate risks within the cryptocurrency industry. As the sector continues to evolve, regulatory bodies are keen on staying abreast of developments and implementing appropriate measures to safeguard the stability of the financial system.