Banks say draft capital rules make cryptoassets too expensive to trade


LONDON, Sept.21 (Reuters) – Proposed capital rules for banks with crypto-assets on their books could prevent lenders from competing in the rapidly growing sector, a group of industry lobby groups said, although they urged watchdogs to act quickly to finalize the regulations.

The Basel Committee on Banking Supervision, made up of regulators from the world’s major financial centers, proposed in June a gradual approach to capital requirements for crypto-assets held by banks. Read more

For riskier assets like bitcoin, banks would need to hold capital worth at least equal to their exposure to the asset to absorb a full write-off.

Industry bodies said in a letter to the Basel Committee sent on Monday that regulatory certainty was needed in the “short to medium term” given the pace of change and customer demand for crypto assets.

The public and regulators would benefit from banks’ involvement in cryptoassets, as lenders have a long history of identifying, monitoring and managing risk, they argued. The Basel proposals make the involvement of banks in the crypto-asset market prohibitively expensive, they added.

“Contrary to these advantages, the prudential framework envisaged by the consultation would create significant obstacles to the regulated participation of banks in the crypto-asset markets,” said the 64-page letter.

Greater banking involvement would help make the underlying blockchain technology more widely available and bring “tangible benefits to the real economy,” he added.

The nine bodies include the derivatives associations ISDA and FIA, the Institute of International Finance, the European markets body AFME and the Digital Chamber of Commerce.

The diverse range of activities in the riskiest group of cryptoassets cannot be adequately addressed by applying a single, undifferentiated risk weight of 1250%, which gives limited recognition of any hedging, depending on the letter.

“This approach is of particular concern given the rapid growth in crypto-asset-related market activity with participants outside the scope of prudential and market regulations,” the letter said.

Banks have taken different attitudes about whether to get involved in what regulators have called purely speculative assets like bitcoin. The cryptoasset business is focused on relatively unregulated or unregulated operators, which regulators have struggled to get hold of.

Reporting by Huw Jones; Editing by Pravin Char

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