Basel Committee on Banking Supervision (BCBS) Announces Proposal to Adjust Risk Standards for Stablecoins

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BCBS announced on December 14th a consultation on adjusting risk standards regarding the proposal to adopt a low-risk standard for stable coins. In this adjustment, it is proposed to update the requirements for exposure to stablecoins by banks. Specifically, the inclusion of stablecoins in “Group 1b”, which are claimed to have stabilization mechanisms, is being considered. Once a stablecoin is classified as “Group 1b,” this asset is subject to the requirements of the existing capital framework. In that case, the standard recommending a large risk weight (RW) imposed by BCBS on unbacked crypto assets such as Bitcoin (BTC) will not be applied and they will be able to benefit from preferential regulatory treatment. Additionally, in order to receive preferential treatment under this regulation, stable coins are required to be “redeemable at any time.” In addition, banks are also required to conduct due diligence to ensure that they fully understand the stabilization mechanism and effectiveness of the stable coins to which they have exposure. As part of this due diligence, the bank is required to conduct statistical tests and prove that it maintains a stable relationship by comparing it to reference assets. Additionally, comments on this adjustment plan are being accepted until March 28, 2024. BCBS was conducting an additional review last year because if there was a test that could clearly identify low-risk stablecoins, it could be added as a judgment criterion for adding them to Group 1b. On the 7th of last week, BCBS discussed a possible revision to how banks should secure capital to compensate for the risks posed by stablecoins. At that time, BCBS announced that it would consult later this month on the “possibility of a narrowing revision” of the standards it sets for “Group 1b” stablecoins, which it claims have stabilization mechanisms. Related News Global Regulator BCBS Reviews Bank Capital Regulations on Stablecoin Exposure Silver Bankruptcy JP Morgan Acquires, Is It Right to Make Big Silver Stronger? EU economic commissioners support strict capital regulations for crypto assets Reference: BCBSimages:Reuters Source: https://www.neweconomy.jp/posts/359151