October 5, 2022

Trade Associations Support BCBS Prudential Framework for Cryptoassets

Steven Lofchie Commentary by Steven Lofchie

In extensive comments, the Global Financial Markets Association ("GFMA"), the Futures Industry Association ("FIA"), the Institute of International Finance, ISDA, the Bank Policy Institute, the International Capital Markets Association and the Financial Services Forum (collectively, the "Associations") expressed support for the Basel Committee on Banking Supervision ("BCBS") design of a prudential framework for the treatment of cryptoassets exposures.

In a Letter responding to the second BCBS consultation on the treatment of cryptoassets, the Associations supported the BCBS in developing a "suitably conservative but appropriately structured and designed regulatory framework." The Associations cautioned against portions of the framework that would "meaningfully reduce" or preclude bank participation in the use of distributed ledger technology to perform traditional banking and financial functions.

The Associations made a number of recommendations, including that (i) cryptoassets presenting equivalent economics and risks as traditional assets "should be subject to the same capital, liquidity and other requirements as the traditional asset," (ii) a "technology risk-neutral" approach be taken (i.e., not imposing infrastructure risk add-ons) and (iii) supervisors should provide clear classification criteria for cryptoassets generally. Banks would then apply, rather than having supervisors pre-approve each individual cryptoasset.

The Associations said that their recommendations to the BCBS consultation framework would, among other things, (i) promote the benefits of distributed ledger technology use, (ii) facilitate regulated banks' engagement in the cryptoasset markets and (iii) level the global regulatory "playing field," thereby improving customer protection.


There is a very large divide in the treatment of digital assets technology by European regulators and by U.S. regulators, as evidenced by the recent report on digital assets published by Financial Stability Oversight Council. The Europeans are open to the innovation; the U.S. regulators are not as open. This divide seems unlikely to play to the long-term benefit of the U.S. economy.

The problems in the U.S. digital assets marketplace are not going to be corrected unless the SEC comes up with a regulatory scheme that supports innovation. It is clear that the underlying technology is capable of providing material benefits. Those benefits will not be achieved in the U.S. if the only permitted mass-market product is a Central Bank Digital Currency funded and controlled by the U.S. government. A regulatory approach that wages war on private sector innovation is a long-term loser for the economy.

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