BIS’ Basel Committee Proposes Mandatory Disclosure of Banks’ Crypto Exposure

The Basel Committee on Banking Supervision, operating under the Bank for International Settlements (BIS), has put forth a proposal that mandates banks to be transparent about their cryptocurrency exposure. This move is seen as a significant step towards ensuring transparency and accountability in the rapidly evolving financial landscape influenced by digital assets.

On October 17, the Basel Committee released a consultation paper suggesting that banks should compulsorily disclose their engagements with crypto assets. The committee, which is a conglomerate of central banks and financial authorities from 28 jurisdictions, aims to foster regulatory cooperation concerning banking supervision. This recent proposal is built upon the disclosure guidelines that were set in the final prudential standard in December 2022, which detailed how banks should manage their crypto asset exposure.

The primary objective of the consultation paper is to establish a standardized disclosure format, which includes a table and templates, to detail banks’ engagements with cryptocurrencies. If this proposal is ratified, it is slated to be implemented by January 1, 2025. To ensure a comprehensive understanding and to gather diverse perspectives, the Basel Committee has opened this proposal for public feedback until January 31, 2024. The feedback received will be subsequently made available on the committee’s official website.

The proposed regulations are comprehensive. They necessitate banks to furnish quantitative data detailing their crypto asset exposure, along with the associated capital and liquidity requisites. Furthermore, banks will also have to provide qualitative insights into their cryptocurrency-related activities. Another significant aspect of this proposal is the requirement for banks to disclose the accounting classifications of their crypto engagements, both assets and liabilities. The committee believes that a standardized disclosure format will bridge the information gap between banks and market participants, promoting market discipline.

It’s worth noting that this isn’t the Basel Committee’s first foray into the crypto domain. In June, the committee had briefly touched upon the subject of crypto assets and bank exposure. However, the focus then was primarily on permissionless blockchains and the qualifying criteria for “Group 1” stablecoins.

The BIS has consistently been at the forefront of discussions and consultations related to cryptocurrencies. In a recent collaborative effort, the BIS, along with several European central banks, unveiled a concept aimed at creating a system to monitor international cryptocurrency flows.

As the world of finance undergoes a paradigm shift with the advent of digital assets, regulatory bodies like the BIS are playing a pivotal role in shaping a transparent and accountable future.

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