On September 20, 2021, ISDA, the Global Financial Markets Association, the Financial Services Forum, the Futures Industry Association, the Institute of International Finance and the Chamber of Digital Commerce submitted a joint response to the Basel Committee on Banking Supervision (BCBS) on its consultation on preliminary proposals for the prudential treatment of cryptoasset exposures.

The industry supports the BCBS’s decision to engage in an iterative approach related to the prudential treatment of cryptoassets. At the same time, the paper calls attention to the need for prudential regulatory certainty in the near to medium term, particularly given the pace of evolution and client demand for cryptoassets. As the BCBS notes, bank exposures to cryptoassets are currently limited, despite the fact that cryptoassets have grown exponentially over the past several years. However, that limited exposure is neither desirable nor sustainable in the view of the industry, and the prudential framework envisaged by the consultation would create material impediments to regulated bank participation in cryptoasset markets.

The industry believes making greater use of the existing international prudential framework (ie, Basel III) is the best way to achieve these principles. For example, using the existing international prudential framework should help enable a consistent application across jurisdictions, leverage a framework that is designed to be product agnostic, and support existing established principles of separately capitalizing banking and trading book risks. This approach also would mitigate unwelcome regulatory fragmentation, as well as limit the prospect of risk concentrating outside a regulatory perimeter.