Letter to Basel on the Second Consultative Document - Prudential Treatment of Cryptoasset Exposures

Basel Committee on Banking Supervision
Bank for International Settlements
CH-4002 – Basel, Switzerland

RE: Second Consultative Document - Prudential Treatment of Cryptoasset Exposures (June 2022)

The American Bankers Association (ABA) is pleased to respond to the consultative document (Consultation) dated June 2022, issued by the Basel Committee on Banking Supervision (BCBS) concerning prudential treatment of banks' cryptoasset exposures. The Consultation follows on the BCBS's previous consultation (Prior Consultation), which provided a useful starting point for analysis of the regulatory issues relevant to bank cryptoasset activities. In ABA’s response to the Prior Consultation, we noted that further work was required to inform this policy debate. ABA believes that the Consultation represents progress, but numerous issues remain. As we noted in 2021, supervisory and regulatory approaches to cryptoassets should be framed by three key principles:

• Market participants and supervisors should acknowledge the need for and work to develop a broad, common understanding of key features of the many existing cryptoassets, as well as the principal risks they present, as the basis for prudential treatment of these assets.
• As banks seek to serve customers who want exposure to cryptoassets, national regulatory and supervisory authorities must permit prudent innovation within the regulatory perimeter to accommodate those customer desires. Authorities should be careful to avoid preempting technological innovation by being overly prescriptive - technological evolution is rapid, and highly prescriptive regulation cannot be adjusted quickly enough to remain current. Inflexibility would constrict financial inclusion and other benefits of emerging technology.
• The overall stability of the global financial system will benefit from the transparency that will result by conducting a significant share of the cryptoasset market through supervised financial institutions, as opposed to being driven outside the banking system. Rational supervision and regulation that avoids overly prescriptive approaches will promote key public objectives of law enforcement, consumer and investor protection, and suppression of terrorism finance and other security threats.

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