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New Guidelines: Basel Committee’s Call for Crypto Transparency

The Basel Committee’s Focus on Crypto Transparency

As the world becomes increasingly intertwined with digital currencies, global financial watchdogs are tightening their grip on how institutions engage with these assets. The Basel Committee on Banking Supervision, the leading setter of international standards, has unveiled preliminary guidelines requiring banks to shed light on their crypto activities, both quantitatively and qualitatively. Published this Tuesday, this guidance aims to enforce transparency and strengthen market discipline.

Banks would be required to disclose qualitative information about their crypto-related activities and quantitative information about exposures to crypto-assets and the corresponding capital and liquidity requirements.

Basel Committee

The Basel Committee’s Stance on Crypto Transparency

The recent turbulence experienced by crypto-affiliated financial entities, such as Signature Bank and Silicon Valley Bank, has further underscored the importance of robust oversight. With this in mind, the Basel Committee’s new proposals go beyond their previous substantial capital requirements, designed to discourage financial institutions from embracing digital currencies.

By 2025, when these recommendations are expected to be operational, banks will have to provide comprehensive reporting on their interactions with crypto assets. This includes both a qualitative analysis of their crypto-related activities and a quantitative breakdown of their exposure to these assets, as well as associated capital and liquidity requirements. The guidelines stem from the alignment between the Basel Committee and the Bank for International Settlements – a conglomerate of central banks based in Basel, Switzerland. Their shared perspective? Uniform disclosure standards will enhance market discipline and bridge the information gap between financial institutions and market players.

Taking a broader perspective, these regulations were suggested fifteen days ago by the committee. Rooted in their fundamental ethos of formulating guidelines for traditional financial lenders to avoid catastrophes like the 2008 financial crisis, they are now diversifying to include the rapidly evolving crypto sphere. Stakeholders and institutions can voice their opinions on these guidelines, as the consultation period is open until January 2024.

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