During its last meeting, the Basel Committee on Banking Supervision weighed in on the treatment of permissionless blockchains and stablecoin classifications. Last December, the Committee published the final rules for bank capital requirements when engaging with crypto assets. It allowed most tokenized securities to be treated as low risk, similar to traditional securities.

However, the final post had reservations regarding the public blockchain. It stated in December: “The Committee will continue to reflect on whether the risks posed by crypto assets using permissionless blockchains can be sufficiently mitigated to allow their inclusion in Group 1 (lower risk) and, if so, what adjustments to that. the classification conditions would be necessary.”

The latest announcement yesterday implies that additional rules for permissionless blockchains could be emerging. The Committee said there would be a further consultation for ‘any possible revision’. He added that the Committee evaluated the eligibility criteria for Group 1 (lower risk) stablecoins without providing further details.

Bank interest in permissionless blockchains

Since the publication of the final Basel rules in December, there have been several moves by banks toward permissionless blockchains. Just yesterday, Swift announced a trial with more than a dozen institutions to experiment with public blockchain interoperability.

There has been the first bank-backed stablecoin issuance by a global systemic bank, Societe Generale. However, it has no buyers yet. Australia’s NAB has also issued a stablecoin and several Japanese banks are preparing to do so.

Regarding digital securities, ABN Amro helped a client issue a bond on a blockchain without permission. Germany’s DZ Bank and DekaBank invested in the Siemens bond issued on a public blockchain.

Banks, including the president of Italy’s banking association, have already argued that Basel puts them at a disadvantage compared to others with regard to blockchain. In many cases, that’s compared to startups.

However, if there are restrictions on tokenized securities on the public blockchain, the challenge is that the non-bank holders they compete with do not have such limitations. Several asset managers are taking an interest in tokenized securities, including on public blockchains, with the Siemens bond as an example. Franklin Templeton’s tokenized money market fund has surpassed $270 million in assets under management. There is a risk that any additional rules will make it uneconomic for banks to compete on the buy or sell side when it comes to tokenization.