Basel Banking Supervision to Apply Bank Crypto Asset Exposure Soundness Regulation in 2025

[Asia Economy Reporter Seo So-jung] Starting from 2025, prudential regulations on banks' cryptoasset exposures will be applied.

According to the Bank of Korea on the 21st, the Basel Committee on Banking Supervision (BCBS) announced the prudential treatment of cryptoasset exposures after final approval at the Governors and Heads of Supervision (GHOS) meeting held on the 16th.

The Basel Committee on Banking Supervision has been working since 2018 to establish a prudential regulatory framework for banks' cryptoasset exposures to promote innovation technology development without undermining financial stability.

At this GHOS meeting, the final regulatory proposal, prepared through discussions and public consultations, was approved and announced, with the implementation date set for January 1, 2025.

The proposal conservatively reflects new risks related to cryptoassets within the existing Basel III regulatory framework. It is based on minimum capital requirements (Pillar 1), non-risk-based regulations (leverage ratio, large exposure, and liquidity risk regulations), supervisory review (Pillar 2), and disclosure requirements (Pillar 3), applying differentiated regulations according to the risk level of cryptoasset types.

Group 1 cryptoassets, which have credit and market risks comparable to traditional assets, will be subject to the existing risk weights under the Basel III framework. However, more conservative capital regulations will be applied to Group 2 cryptoassets, which carry higher risks than Group 1 cryptoassets.

Additionally, a new provision was introduced allowing supervisory authorities to impose additional capital requirements on all Group 1 cryptoasset risk-weighted assets if vulnerabilities in cryptoasset infrastructure emerge due to the application of new technologies such as distributed ledger technology. Furthermore, the total exposure to Group 2 cryptoassets must not exceed 2% of a bank's Tier 1 capital and should generally be maintained below 1%.

If Group 2 exposure exceeds the 1% limit, capital requirements will be tightened on the excess amount, and if it surpasses the 2% limit, capital requirements will be strengthened on the entire Group 2 exposure.

The Basel Committee on Banking Supervision stated, "Even after the final approval, we will continuously monitor the cryptoasset market trends related to banks to ensure consistent interpretation of the regulations and respond to new risks, discussing the need for additional regulatory and supervisory measures." They added, "We plan to create an internationally consistent regulatory environment for stablecoins through cooperation with other international standard-setting bodies and the Financial Stability Board (FSB)."

This content was produced with the assistance of AI translation services.