Basel Committee Pressures Cryptocurrency Regulation: "Banks Must Fully Compensate Bitcoin Losses"

Basel Committee Setting Global Financial Supervision Standards
"Cryptocurrency Is the Most Risky Asset" Regulation

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kim Suhwan] The Basel Committee on Banking Supervision (BCBS), which sets global financial supervisory standards and discusses issues among supervisory authorities, has classified cryptocurrencies such as Bitcoin as the highest risk assets. The Basel Committee expressed concerns over the extreme price volatility and illicit transactions of cryptocurrencies and decided to require banks to secure safe assets to cover all losses arising from cryptocurrencies.

On the 10th (local time), the Basel Committee announced it would take a "conservative approach" toward cryptocurrencies and proposed strengthening regulations by mandating banks in each country to reserve funds sufficient to offset 100% of cryptocurrency losses.

Specifically, the Basel Committee indicated it would impose a risk weight of 1250% on cryptocurrencies. This means that banks holding cryptocurrencies must secure other safe assets equivalent to 1250% of the value of those cryptocurrencies.

This is the highest risk weight assigned to any type of asset. This has led to interpretations that the Basel Committee views cryptocurrencies as riskier and more volatile assets than traditional investment instruments such as bonds and stocks.

The Basel Committee stated that "virtual assets raise a wide range of concerns including money laundering, support for terrorist organizations, environmental issues, and investor protection problems," and that "the rapid increase in virtual assets can destabilize finance and put banks at risk."

Earlier, Andrew Bailey, Governor of the Bank of England, also warned last month that "cryptocurrencies have no intrinsic value" and that "if you buy cryptocurrencies, you must be prepared to lose all your money."

The Basel Committee also identified types of risks banks may face, including asset liquidity risk, credit rating impact, market risk, fraud and cybercrime, money laundering issues, and legal risks.

However, the Basel Committee hinted at the possibility of applying relaxed standards to stablecoins. Stablecoins are cryptocurrencies that guarantee price stability by being pegged to existing fiat currencies.

The proposal released by the Basel Committee on this day is a draft and will undergo consultations before finalization.

Due to these measures by the Basel Committee, plans for cryptocurrency-related investments or product operations by banks worldwide are expected to face setbacks. In particular, since banks must secure sufficient funds to fully offset losses from highly volatile cryptocurrencies, it is observed that banks have even less incentive to enter the cryptocurrency market.

[Image source=Reuters Yonhap News]

Previously, Goldman Sachs in the United States and Standard Chartered (SC) Bank in the United Kingdom opened their own cryptocurrency trading desks.

On the other hand, HSBC in the UK announced it would not trade products related to virtual assets, and NatWest declared it would not do business with corporate clients that accept cryptocurrencies as a payment method. As a result, companies like WeWork that allow cryptocurrency transactions have been unable to do business with NatWest.