BIS sets global standards for banks' exposure to crypto assets, expected to be implemented starting in 2025

The Group of Governors and Heads of Supervision (GHOS) under the Bank for International Settlements (BIS) has updated the "Prudential Treatment of Banks' Crypto Asset Exposures" standard, with the implementation date set for January 1, 2025. This standard categorizes tokenized traditional assets, stablecoins, and other crypto assets, and establishes relevant standards for banks to follow when dealing with digital assets.

Establishing Framework for Banks to Mitigate Risks

According to data from the Bank for International Settlements (BIS), direct exposure of the global banking system to crypto assets is still relatively low. However, in light of recent events, regulators are calling for the establishment of a robust global minimum prudential framework for internationally active banks to mitigate the risks associated with crypto assets.

In its report, BIS categorizes crypto assets into two groups. Group 1 includes tokenized traditional assets and stablecoins, while Group 2 consists of other unsecured crypto assets with higher risks, requiring additional capital based on market and operational risks.

BIS first proposed this framework last year and released a second public consultation report at the end of June. The latest update incorporates feedback from the market and experts, agreeing to replace the fixed risk weights for Group 1 with a more flexible approach, allowing authorities to trigger and increase additional requirements based on any vulnerabilities observed in specific crypto assets. It also introduces redemption risk tests and supervisory requirements for Group 1 crypto assets.

For the higher-risk Group 2 assets, banks must limit their exposure amount to below 1% of the bank's Tier 1 Capital and must not exceed 2%. They are also subject to stricter standards compared to other digital assets.

GHOS Chair/ Bank of Canada Governor Tiff Macklem stated:

The GHOS approval marks a significant milestone in setting global regulatory standards to mitigate the risks crypto assets pose to banks. It is crucial to continue monitoring developments related to banks in the crypto asset market. We stand ready to take further action if necessary.