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A global banking regulator will review its strict proposal for crypto regulation after pushback from central banks.
Basel Committee on Banking Supervision said it would revisit its proposal on capital requirements for crypto.
The current proposal treated crypto as one of the riskiest asset classes. As a result, significant banks opposed the regulation to limit their involvement in crypto.
Due to the backlash, the Basel Committee went back to the drawing board.
The regulator restated its commitment to a “conservative” global minimum standard to mitigate crypto risks to the banking system.
It stated that it would “further specify” the treatment of crypto and have a new document ready by mid-2022.
In June, the Committee submitted a proposal for regulating banks with crypto exposure.
The most contentious of the regulations was the one on capital requirements. Under the proposal, banks with crypto exposure should set aside capital to cover any losses in full.
While some cryptocurrencies like tokenized assets and stablecoins could receive the same treatment as before, most cryptos would not.
Therefore, Bitcoin and other cryptocurrencies would “be subject to a new conservative prudential treatment” as “they pose additional and higher risks.”
In effect, this puts crypto in the category of the investment with the most risk.
Major Banks Push Back
However, most banks opposed the new strict rules. This included the Global Financial Markets Association, a group that represents central banks and other groups.
In a letter to the Basel Committee, the group called the proposal too “conservative.” The regular coins would limit the ability of banks to expand into the crypto space, they said.
“We find the proposals in the consultation to be so overly conservative and simplistic that they, in effect, would preclude bank involvement in crypto-asset markets,” the GFMA wrote.
Banking heavyweights such as JPMorgan and Chase, and Deutsche Bank are members of the group.
Presumably, the backlash means that significant banks want to be more involved in the crypto space.