Home Blockchain GFMA, IIF, ISDA Say Proposed Basel Crypto Rules Make DLT Unattractive – Ledger Insights

GFMA, IIF, ISDA Say Proposed Basel Crypto Rules Make DLT Unattractive – Ledger Insights

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GFMA, IIF, ISDA Say Proposed Basel Crypto Rules Make DLT Unattractive – Ledger Insights

Source: www.ledgerinsights.com

In late June, the Basel Committee on Banking Supervision published a revised proposal on capital requirements for crypto asset risk exposures, including tokenized securities. Today, eleven trade bodies posted comments on the proposals and they are not happy.

Bodies include the Global Financial Markets Association (GFMA), the International Swaps and Derivatives Association (ISDA), the Institute of International Finance (IIF).

Two issues are particularly problematic.

A tax on traditional tokenized assets

The first is for tokenized traditional assets with a proposed increase in risk-weighted assets (RWA) of 2.5%. It is argued that it could make commitment to DLT infrastructures unattractive. This is because one of the goals of adopting blockchain infrastructures is to reduce the restrictions of RWA and the initial costs of investing in DLT.

A couple of people have described Ledger Insights’ 2.5% as a “DLT tax”. The associations have called for it to be removed.

In March 2023, the EU will launch a regulatory sandbox, the DLT pilot regime, with the UK planning something similar.

The comment letter states that the Basel proposals “could derail market and associated regulatory innovation through the introduction of regulatory sandboxes in some jurisdictions from the first quarter of 2023, for which banks would have to justify the requirements. of additional capital that would result from the participation.

It is argued that any risk related to new technology is already covered by the existing prudential framework and risk management systems.

The cryptocurrency limit

The second issue relates to the total exposure figure for cryptocurrencies other than stablecoins. The latest Basel Committee proposal set it at 1% gross of Tier 1 capital. In other words, if a bank has hedged all of its positions, both the position and the hedge will count towards 1%. Instead, the group proposes a net position of 5%.

A comment letter from the group after the first round of consultations had some impact on the second proposal. For example, coverage was previously completely ignored. While not included in the cap figure, it is accounted for elsewhere.

More to follow.


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