ICBA to Basel Committee: Strengthen protections against crypto risk

ICBA said the Basel Committee on Banking Supervision’s framework for classifying cryptoasset exposures validates community bank misgivings about cryptocurrencies.

Background: The Basel Committee’s consultative document proposes revised standards for stablecoins to qualify for the most preferential capital treatment. The proposal would establish strict standards—each of which would need to be met to qualify for preferred treatment—and would exclude any cryptoassets that operate on permissionless networks.

ICBA Comments: In a comment letter on the Basel Committee’s consultative document on cryptoasset standards, ICBA said:

• The proposal represents an accurate assessment of key risk factors associated with stablecoins, validating ICBA’s view that stablecoin instruments do not provide any advantages over the existing U.S. banking system.

• It strongly agrees with Basel’s assessment of the risks arising from permissionless networks, which would apply to all major stablecoins and raise questions about the functions of stablecoins that cannot be carried out by other methods.

• While the revisions may limit banks’ exposure to stablecoins, they are unlikely to shield the financial system from disintermediation by the crypto ecosystem, so additional actions to confront the hazards of stablecoins are needed.

Latest on Crypto: Shortly after ICBA submitted its comments, FTX founder Sam Bankman-Fried was sentenced to 25 years in prison for defrauding his cryptocurrency exchange’s customers and investors, the Financial Action Task Force warned that jurisdictions across the world are failing to regulate crypto, and Bloomberg reported that U.S. and U.K. law enforcers are investigating Russian use of Tether to evade sanctions.

ICBA Advocacy: In a recent comment letter, ICBA told the Financial Crimes Enforcement Network that it should strengthen its proposal to institute recordkeeping and reporting requirements for financial institutions, which is insufficient to adequately protect against crypto-related illicit financial activity. ICBA also supports additional global efforts to advance international cryptoasset regulation, including the Financial Stability Board’s framework to support consistent regulatory standards and the International Organization of Securities Commissions’ baseline policy recommendations.