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HomeNewsBasel Committee Revamps Stablecoin Criteria for Risk Classification

Basel Committee Revamps Stablecoin Criteria for Risk Classification

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  • The Basel Committee for Banking Supervision (BCBS) is revising criteria for stablecoins to qualify as less risky than unbacked cryptocurrencies.
  • Stablecoins must be “redeemable at all times” under supervision and regulation to receive preferential regulatory treatment.

Redefining Stablecoin Regulations: A Stricter Approach from BCBS

In a move that signifies heightened scrutiny in the crypto space, the Basel Committee for Banking Supervision (BCBS) has proposed significant changes to the way stablecoins are classified in terms of risk. The proposed revisions are detailed in a consultative document released by the BCBS, indicating a shift towards more stringent regulatory standards for stablecoins compared to unbacked cryptocurrencies like Bitcoin (BTC).

The BCBS, a global banking regulator, plays a pivotal role in setting standards for the banking industry. It has traditionally maintained a cautious stance on cryptocurrencies, suggesting a high-risk weight of 1,250% for volatile digital assets such as Bitcoin. This implies that banks are required to hold capital equivalent to their exposure to these high-risk assets and limits their core capital allocation to such assets to no more than 2%. The BCBS affirmed that there would be no changes to these standards.

Criteria for Stablecoins Under Scrutiny

However, the committee’s latest proposal focuses on “cryptos with effective stabilization mechanisms,” notably stablecoins. Under the current framework, stablecoins are eligible for

“preferential Group 1b regulatory treatment.”

This classification allows them to be subject to capital requirements based on the risk weights of underlying exposures as defined in the existing Basel Framework, as opposed to the more stringent requirements applied to assets like Bitcoin.

The key criterion under revision is the requirement for stablecoins to be

“redeemable at all times.”

This condition is crucial as it ensures that only stablecoins issued by entities under strict supervision and regulation, and those that guarantee robust redemption rights and governance, are considered for the preferential treatment. This move reflects the BCBS’s effort to ensure financial stability and protect against the potential risks posed by the burgeoning crypto market.

The proposed revisions by the BCBS underscore the evolving landscape of cryptocurrency regulation. As the global financial system grapples with the integration of digital assets, these changes mark a significant step towards establishing a more robust and risk-aware regulatory framework. The focus on stablecoins, in particular, highlights the need for a balanced approach that recognizes their growing role in the digital economy while addressing the inherent risks associated with their operation.

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Godfrey Benjamin
Godfrey Benjamin
Godfrey Benjamin is an experienced crypto journalist whose primary goal is to educate everyone about the prospects of Web 3.0. His love for crypto was sparked during his time as a former banker when he recognized the clear advantages of decentralized money over traditional payments. Business Email: info@ethnews.com Phone: +49 160 92211628
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