Basel Committee Proposes Stricter Guidelines for Stablecoins
The Basel Committee for Banking Supervision (BCBS) has released a consultative paper proposing stricter rules for classifying stablecoins as less risky assets compared to unbacked cryptocurrencies like Bitcoin (BTC).
Proposed Amendments to Stablecoin Guidelines
The BCBS suggests 11 rules to guide banks’ exposure to crypto assets, focusing on areas such as credit maturity, liquidity, and asset reserve. The committee seeks changes in the requirements for including stablecoins in banks’ portfolios and calls for technical amendments to understand crypto assets better.
All stakeholders are invited to provide feedback on the proposed amendments before March 28, 2024, through the committee’s website.
Maturity of Reserve Assets and Over-Collateralization
The proposed guidelines emphasize the maturity of reserve assets, with shorter-term assets being considered less risky during times of crisis. Banks will be required to set limits on individual reserve assets and average limits for asset pools to maintain shorter maturity rates.
In cases where longer-term assets are used or short-term assets are limited, reserve assets must be over-collateralized to cover potential declines and avoid losses.
Liquidity and Risk Management
The draft guidelines also stress the importance of liquidity. Stablecoin issuers should aim for assets with lower volatility to ensure price stability and prevent future loss of assets.
Furthermore, there is a requirement for active and sizable markets with sufficient liquidity for trading reserve assets. Stablecoin issuers should have a risk management framework in place to monitor credit, market, and concentration risks.
Disclosure Requirements and Audits
The proposed guidelines also include disclosure requirements for authorities to assess risk factors. They also emphasize the need for independent external audits of reserve assets to confirm that they match the disclosed reserves and are consistent with the mandate. These audits may be required annually or semi-annually.
Hot Take: Stricter Guidelines for Stablecoins
The Basel Committee for Banking Supervision is proposing stricter guidelines to classify stablecoins as less risky assets compared to unbacked cryptocurrencies. The proposed amendments focus on areas such as credit maturity, liquidity, and asset reserve. They aim to ensure that stablecoin issuers have sufficient reserves to meet redemption demands and prevent loss of assets. The guidelines also stress the importance of liquidity, risk management, and disclosure requirements. The proposed changes reflect regulators’ concerns about the stability and safety of stablecoins in the financial system. Stakeholders have until March 28, 2024, to provide feedback on the proposed amendments.
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