During an event today, Giovanni Sabatini, Director General of the Italian Banking Association (ABI), called for a level playing field regarding the regulation of crypto assets. He was discussing the final Basel crypto rules that require banks to grant a 1250% risk weight for cryptocurrencies (Group 2 crypto assets). That often means setting aside a euro of capital for every euro of crypto exposure. In addition, the Basel rules limit exposure to 2% of Tier 1 capital.

Sabatini described the rules as “quite conservative”, although he acknowledged the need for prudential treatment.

“We believe that there may still be room to improve this prudential scheme,” Sabatini said. “Banks are penalized because they would not compete on a level playing field with other entities, namely FinTechs, BigTechs and new players like crypto asset service providers (CASPs), which are not subject to the same capital requirements.” He noted that the proposed European laws (MiCA) have less stringent provisions on CASPs.

We note that this is deliberate because regulators want to delimit crypto risks from the traditional financial sector (TradFi). Otherwise, if there was a crypto contagion, people with no interest in crypto could suffer losses from bank failures. Or governments could be left to foot the bill for bailing out the banks. However, banks are undoubtedly at a disadvantage compared to start-ups. In the longer term, this could mean that these newcomers usurp the banks.

Sabatini noted that banks are capable of imposing appropriate safeguards, comparing them to the “less trustworthy players” that were in evidence during the crypto fallout.

“I strongly believe that we need a more comprehensive regulatory framework that goes beyond the traditional approach (including increased prudential requirements for regulated entities) that ensures that the risks and challenges posed by crypto assets are adequately addressed regardless of the entities who trade with them. active”, concluded Sabatini.

Earlier this month, the European Parliament voted on draft temporary rules that would enforce the 1,250% risk weight while it works on more detailed regulations implementing the Basel rules. Meanwhile, the European Central Bank (ECB) has said that “banks are expected to meet the standard” despite legislation not yet being passed.