Central banks will establish standards on bank exposure to cryptocurrencies. According to the BIS (bank for international settlements), the new standard limits crypto reserves among banks to 2%. This reform comes into force on January 1, 2025. We explain everything to you in this article.
A global regulation
It is often rare that there is a consensus on the regulation of cryptos on a global level. However, a global standard for banks’ exposure to cryptoassets has been approved. This was passed by the Group of Central Bank Governors and Oversight Officials (GHOS) of the Bank for International Settlements (BIS).
The standard, which sets a 2% limit of cryptocurrency reserves among banksis to be implemented on January 1, 2025, according to an official announcement on December 16.
The report, dubbed “Prudential treatment of exposures to cryptoassets“, lays out the final standard structure for banks regarding exposure to digital assets. This also includes traditional tokenized assets, stablecoins and unbacked cryptocurrencies.
The Basel Committee on Banking Supervision noted that the report will soon be incorporated as a new chapter in the “Consolidated Basel Framework”. The latter is the set of standards of the Basel Committee on Banking Supervision (BCBS). It’s the the world’s leading standard setter for banking prudential regulation.
A relatively low risk of exposure
Also according to the BIS, the direct exposure of the global banking system to digital assets remains relatively low. However, recent developments have highlighted:
“LImportance of having a strong minimum framework for internationally active banks to mitigate risks.”
The organization also states that:
“Unbacked crypto-assets and stablecoins with ineffective stabilization mechanisms will be subject to careful prudential treatment. The standard will provide a robust and prudent global regulatory framework for internationally active banks’ exposures to crypto-assets that promotes responsible innovation while safeguarding financial stability.”
Pablo Hernández de Cos, Chairman of the Basel Committee and Governor of the Bank of Spain, noted of the standard:
“The Crypto-Assets Committee standard is yet another example of our commitment, willingness and ability to act in a coordinated manner globally to mitigate emerging risks to financial stability. The Committee’s work program for 2023-24, approved today by the GHOS, aims to further strengthen the regulation, supervision and practices of banks worldwide. It focuses in particular on emerging risks, digitalisation, climate-related financial risks as well as the monitoring and implementation of Basel III.”
The BIS unveiled the results of its multi-jurisdictional central bank digital currency (CBDC) pilot program in September. The project came into existence after a month-long test phase that enabled cross-border transactions worth $22 million.
The pilot program involved the central banks of Hong Kong, Thailand, China and the United Arab Emirates, as well as 20 commercial banks from these regions. According to a BIS report published in June, around 90% of central banks are considering the adoption of CBDCs.
Need for global regulation
If you follow the world of cryptocurrencies, you have certainly not missed the fall of FTX. Indeed, the event caused an earthquake for the entire crypto ecosystem.
Today, governments and global organizations believe that digital assets must be regulated as soon as possible to avoid this kind of catastrophe.
The new crypto limit standards in 2025 are likely to be stricter than the current ones. This will significantly reduce the financial risks associated with investing in the cryptocurrency industry.
Stricter regulation will not onlyincrease market security, but also to ensure that investors are protected from manipulation and fraud. In addition, investors will obtain an optimal capital gain on their stakes.
And finally, the use of technical analysis tools will provide a better understanding of the market. This will allow investors to make more informed decisions about cryptocurrencies.
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