Supervisors will regulate banks' exposure to cryptocurrencies

The Basel Committee on Banking Supervision plans to agree on a regulatory framework that will govern banks’ exposures to cryptocurrencies, according to its work program for the years 2021 and 2022, published this Friday by the entity.

Between this year and next, the Committee plans to “finalize current initiatives related to risk mitigation and structural trends such as the prudential treatment of banks’ exposures to crypto assets.”

Like other regulators and central banks in different countries, the Basel Committee classifies cryptocurrencies as crypto assets because, in its opinion, they do not meet the requirements and functions to be treated as money.

The regulatory framework will also set the information requirements for banks with respect to market risk and sovereign exposures.

This initiative is part of one of the three lines of work that the Committee has set itself for these two years: identifying, assessing and mitigating risks and vulnerabilities in the banking system. In addition to cryptocurrencies, the agency will also monitor other risks such as the impact of digitization and financial disintermediation, climate change and the impact of a longer low interest rate environment.

The Committee has emphasized that in the next two years all the necessary work will be carried out for the definitive implementation of the Basel III regulatory framework.

“It is critical that all jurisdictions implement the current Basel III standards consistently, on time and in full. Our strategic priorities are ambitious and seek to ensure that the Committee continues to promote global financial stability and safeguard the safety and soundness of assets. banks worldwide “, stressed the president of the Basel Committee on Banking Supervision, as well as the governor of the Bank of Spain, Pablo Hern├índez de Cos.

The second line of work of the Basel Committee will be resilience against Covid-19 and economic recovery from the crisis. Thus, the risks and vulnerabilities arising from the pandemic will be monitored and assessed and, if necessary, new regulatory responses will be developed and deployed to support the banking system and mitigate risks.

In this context, the Committee has reported that it will monitor the implementation and gradual reduction of the measures adopted by the different countries to support banks. It has also indicated that it is preparing a report that includes “lessons learned” with respect to the Basel III standards. The document will be finalized in the summer of 2021 and will form part of the report that the Financial Stability Board sends to the G20.

The third line of work for 2021-2022 is to “strengthen” the coordination and supervision practices between the different agencies. Key areas for time will include the use of artificial intelligence in supervisory activity, data and technology governance by banks, and supervisory approaches to operational resilience, especially in the area of cybersecurity.

Anticovid measures

The Basel Committee on Banking Supervision has published its work program and priorities for this year and next, in which it will continue to focus on the crisis that has triggered the covid-19 pandemic.

The Basel Committee on Banking Supervision, chaired by Pablo Hern├índez de Cos, governor of the Bank of Spain, “will follow the implementation and development of the national measures approved by member countries during the pandemic,” according to the aforementioned program.

These measures should also be consistent with the application of the Basel III regulation.

In parallel, the Committee assesses “the lessons learned” from the COVID-19 crisis with respect to the Basel III standards.

In the summer of 2021, it will complete a report on the matter, which will be followed by updates.

The conclusions of the Committee will form part of the reports of the Financial Stability Council to the G20 countries.

The Committee will also analyze the impact of digitization and financial disintermediation on the business models of banks and the banking system in general.

It will also assess measures to reduce risks from weather-related issues and the impact of long-term low interest rates on banks.

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