Financial regulators worldwide are losing sleep over the rapidly growing cryptocurrency industry. And are now enforcing stringent capital rules on digital currencies.
But the global financial industry is warning about the move. Instead, it urges regulators to go easy on the industry. They believe imposing (strict) requirements will drive crypto activity underground — depriving banks of the benefits of the technology.
In a letter to the Basel Committee, trade groups representing the blockchain industry, asset managers and banks, said regulators’ proposals will impede banks’ participation in the booming crypto industry. That will make it even more expensive to venture into.
“[The proposals are] so overly conservative and simplistic that they, in effect, would prelude bank involvement in crypto-asset markets.”
The groups’ response comes when banks are conflicted about how to balance customers’ growing crypto interest with imposed regulations on the crypto industry.
Authorize crypto to curb its volatility
In June, the Basel Committee — a powerful global banking standard-setter — proposed the toughest capital rules on cryptocurrencies. That will adversely affect the cost for traditional banks’ dealings in crypto assets.
The booming crypto industry is rapidly growing, no doubt. It has attracted massive investor interests. Thus, forcing global financial regulators to step up their scrutiny into the digital asset marketplace this year.
Proponents suggest traditional financial sectors should legalize digital currencies to curb the industry’s volatility and potential consumer risks.
Alisson Parent, Director at GFMA, which represents banks internationally, said since most cryptocurrency activity is unregulated, people would benefit more from the sector if regulated banks can “meaningfully participate in these markets”.
The trade group’s letter was signed by the International Swaps and Derivatives Association, the Chamber of Digital Commerce, the Institute of International Finance, the Global Financial Markets Association, and the Financial Services Forum.
Capital requirements for banks holding crypto
In a move to control the cryptocurrency industry, the Basel Committee proposed capital requirements for banks holding digital currencies.
If a bank holds Stablecoins, stock tokens, and other digital assets, they qualify for a modified version of the existing banking rules on minimum capital standards.
However, if a bank holds Bitcoin and Ethereum, it’s required by law to hold at least 1$ of collateral against each $1 of virtual currency in its possession.
The trade groups questioned the rules saying crypto assets are so diverse. And each crypto asset has risks. So, the committee should tie these requirements to those risks.
The group also suggested the requirements should show the difference between the risks banks will face when holding crypto assets and when trading them.
