Basel Committee to Discuss Stablecoins Risk Management: A Consultation Approach

• Revisions on Stablecoin Criteria Planned by Basel Committee
• Regulatory Focus on Crypto Exposure
• Stablecoin Criteria Consultation
• Criteria Differentiation for Crypto Treatment
• Risks with Permissionless Blockchains
• Monitoring Banks' Crypto Custody Activities

Revisions on Stablecoin Criteria Planned by Basel Committee

The Basel Committee, recognized globally as a banking standard-setter, unveiled intentions to deliberate on potential alterations to its guidelines for stablecoins. This followed a review of some aspects of the prudential standard for banking exposure to cryptocurrency, an exercise the committee carried out in December of the previous year.

Regulatory Focus on Crypto Exposure

Regulators have been actively seeking ways to govern cryptocurrency and alleviate the risks affiliated with banks' exposure to it. Notable examples include the recent downfall of Silvergate Bank and Silicon Valley Bank, both known to have ties with cryptocurrency, which resulted in regulators intensifying their scrutiny of banks associated with crypto.

Stablecoin Criteria Consultation

The Basel Committee has expressed desires to seek consultation on the criteria for stablecoins to qualify for group 1b regulatory treatment. This points to cryptoassets with effective stabilization mechanisms, as shared by the committee.

Criteria Differentiation for Crypto Treatment

In its initial report published in December, the committee differentiated its criteria for the treatment of cryptocurrency into two groups. Group one cryptocurrencies would have to fulfil the complete set of classification conditions and would be required to meet capital requirements. Contrarily, Group two cryptocurrencies that fail to meet the classification conditions would necessitate a newly defined capital treatment.

Risks with Permissionless Blockchains

The committee concluded that crypto assets that use permissionless blockchains pose risks that presently cannot be mitigated sufficiently and hence, decided to continue with the existing treatment for such cryptoassets, the committee expressed in the report.

Monitoring Banks' Crypto Custody Activities

The committee also reached a consensus to keep a watch on the progression of banks' activities related to crypto custody and determine if further work is necessary in this regard.

Edited by Jonathan Stoker