The Basel Committee, composed of global banking regulators, has introduced a proposal aimed at providing greater transparency regarding major banks’ cryptocurrency related asset holdings. The proposal outlines a standardized format that banks will be required to follow, with the implementation set for January 2025.
As noted in the report, the primary objective is to offer investors a comprehensive view of the banks’ crypto assets, supporting what the Committee refers to as “market discipline.”
“The proposed requirements set out in DIS55 will apply to internationally active banks at the top consolidated level,” the Committee said in a statement.
Basel Committee Unveils a Global Initiative
This initiative stems from the Basel Committee’s determination to create a consistent and standardized approach to disclosing cryptocurrency assets. This approach represents a collaborative attempt to ensure that financial institutions around the world are better equipped to address the challenges and risks posed by the rapid growth of crypto assets, despite the fact that they offer several advantages such as seamless cross-border transactions, decentralization, and financial inclusion for users.
By providing clear and consistent information about their crypto asset activities, banks will not only enhance their own accountability but also contribute to reducing information imbalances between them and investors.
What Banks Must Disclose
The Basel Committee’s proposal mandates two essential types of information that banks will be required to disclose: Qualitative Information and Quantitative Information.
Qualitative Information encompasses an overview of the bank’s activities related to crypto assets. Banks will need to articulate their strategies, use cases, and plans concerning these digital assets.
On the other hand, the Quantitative Information section delves into the nitty-gritty details of a bank’s crypto asset holdings. It includes information on exposures to crypto assets and the capital and liquidity requirements tied to them.
To facilitate compliance with these new rules, the Basel Committee plans to introduce templates for banks. These templates will provide standardized disclosures related to liquidity requirements and assess whether the crypto assets in a bank’s portfolio adhere to specific classification conditions.
The rule will also mandate that banks disclose the sources of information they have used to assess whether the cryptoassets to which they are exposed comply with the crypto asset classification conditions set forth in a particular rulebook.
Finally, the Basel Committee noted that certain elements of the crypto asset standard are subject to specific monitoring and review, like statistical tests, the composition of reserve assets for the purpose of the redemption test, and permissionless blockchains in the prudential treatment of crypto asset exposures.