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Basel and the prudential treatment of cryptoassets - what is the space for banks and how expensive will it become?

Following a challenging year for cryptoassets, 2023 is the year of legislative reform as legislators calibrate their approach to businesses operating in this space. Banks are still hesitant to take on direct exposures to cryptoassets, however this may change. As we stated in our Fintech predictions for 2023, worries about the governance of some of the largest fintechs that have contributed to a number of high-profile collapses may encourage traditional banks to step in and become the driver of tokenisation.

How will cryptoasset activities fit into the regulatory perimeter?

The recently published finalised standard on the prudential treatment of cryptoasset exposures by the Basel Committee on Banking Supervision (BCBS), the global final standard setter for the prudential regulation of banks, outlines the future regulatory baseline for banks to address risks from cryptoassets. Incorporated into the Basel Framework as a new chapter ‘SCO60: Cryptoasset expsoures’ and marked for implementation by 1 January 2025, the Final Standard has already been picked up as part of the current legislative procedure to amend the Capital Requirements Regulation (CRR) to implement Basel III as the European Parliament’s Economic and Monetary Affairs Committee invited the European Commission to submit a legislative proposal by June 2023 on a dedicated prudential treatment for exposures to cryptoassets.

The standard attempts to provide a comprehensive approach to the prudential treatment of cryptoasset exposures, addressing in varying detail aspects ranging from the application of the banking/trading book boundary to cryptoassets, to the large exposure requirements. Our client briefing focusses on the main takeaways and, specifically, where the standard differs from the regime applicable to ‘traditional’ assets.

Basel and the prudential treatment of cryptoassets - what is the space for banks and how expensive will it become
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