Cryptocurrencies must come with strict rules, say banking regulators

Cryptocurrencies must come with strict rules, say banking regulators

According to global banking regulators, cryptocurrencies comprising bitcoin should come with the toughest bank capital rules. The move is intended at avoiding putting the extensive financial system at risk if there is a sudden collapse in their value.

As per the Basel Committee on Banking Supervision, a new conservative prudential treatment should be launched for crypto-assets. The treatment must be equipped to force banks to keep aside enough capital for the coverage of 100% of potential losses. The BCBS comprises of regulators from leading financial centers at the global level.

As added by the Basel Committee, crypto-assets have given rise to a variety of concerns comprising terrorist financing and money laundering, consumer protection, and their carbon footprint. While most regulated banks presently have limited exposure to cryptocurrencies, the committee warned that the expansion of crypto-assets and associated services has the potential for raising concerns associated with financial stability and escalating the risks that are faced by banks.

As per NatWest, the UK lender, it will refuse to serve enterprise clients who accept payment in cryptocurrencies apace with those payments that are made by credit, debit cards, and cash. This will be so even if it could mean turning away remarkable companies comprising the office-sharing company, WeWork, and the ethical cosmetics company, Lush.

While most authorities are beginning to crack down on the deployment of crypto-assets, some are following a more open-minded approach. As per an announcement by El Salvador, it would become the first country for the adoption of bitcoin as legal tender, in spite of consistent warnings from central banks that investors should be set for losing all their cash.

For the record, the most powerful setter of banking standards at the global level, warned that certain crypto-assets had proved to be extremely volatile. This meant that they could present risks for banks as there is an increase in exposures, comprising credit risk, liquidity risks, operational risk (inclusive of cyber risks and frauds), market risk, legal and reputational risks, and money laundering/terrorist financing risk.

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