October 17, 2023 at 12:20 GMTModified date: October 17, 2023 at 12:20 GMT
October 17, 2023 at 12:20 GMT

Basel wants banks to disclose crypto exposure from 2025

The BCBS has proposed banks to disclose quantitative and qualitative information on their crypto activities.

Basel wants banks to disclose crypto exposure from 2025

The Basel Committee on Banking Supervision (BCBS) has proposed banks to disclose quantitative and qualitative information on their crypto activities. This was revealed in the latest draft guidance published by the global standard setter on Tuesday.

The committee’s guidance is aimed at ensuring transparency and market discipline. With a proposed implementation date of 1 January 2025, the BCBS has requested for a standardised disclosure table and set of templates for banks’ crypto asset exposures where: “banks would be required to disclose qualitative information on their activities related to crypto assets and quantitative information on exposures to crypto assets and the related capital and liquidity requirements.”

Along with this, they would also be required to provide details of the accounting classifications of their exposures to crypto assets and crypto liabilities. By implementing a common format for disclosures, the Committee expects to support the exercise of market discipline and help reduce information asymmetry between banks and market participants.

Comments from the public and market participants will be welcomed and accepted until 31 January 2024. These will be published on the Bank for International Settlements’ (BIS) website unless a respondent specifically requests confidential treatment.

The latest proposal comes on the back of the Basel’s hefty capital requirements which have been imposed to discourage banks from holding unbacked crypto such as Bitcoin ($BTC) and Ether ($ETH). Decisions like these have been abundant following collapse of crypto-linked lenders such as Signature Bank and Silicon Valley Bank.

Plans regarding the recent disclosure proposal were first revealed about two weeks back. Back then, it had said that the disclosures would complement the existing prudential standard for such exposures that was published in December 2022.

This decision was a result of the Committee’s meeting that happened on 4–5 October in Basel where it discussed recent market developments and risks to the global banking system. Risks and vulnerabilities to the global banking system, like climate-related financial risks and digitalisation of finance, were explored in the same. Here, crypto-assets were highlighted as the leading one.

The BCBS was initially named the Committee on Banking Regulations and Supervisory Practices in 1974. It was established to enhance financial stability by improving the quality of banking supervision worldwide, and to serve as a forum for regular cooperation between its member countries on banking supervisory matters.

The Committee’s 45 members comprise central banks and bank supervisors from 28 jurisdictions. Since its inception, it has expanded its membership from the G10 to 45 institutions from 28 jurisdictions.

It comes under the Bank for International Settlements, which is an international financial institution owned by member central banks. In September 2023, BIS’ general manager, Agustin Carstens, had called for legal frameworks across counties to support the creation and integration of central bank digital currencies (CBDCs).

In his speech at a conference in Switzerland, he pointed out how nearly 80% of central banks worldwide either lack the legal authority to issue digital currencies or operate within ambiguous legal parameters. Therefore, legal frameworks must evolve in step with CBDC development to unlock their full potential and must include three core elements to preserve: privacy, financial system integrity, and user choice.

Carstens added: “It is simply unacceptable that unclear or outdated legal frameworks could hinder their deployment. The work to address these issues needs to begin in earnest. And it needs to proceed at pace.”