Regulators plan strict rules for banks on bitcoin

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Regulators plan strict rules for banks on bitcoin


NEW DELHI: Banks face the stricter capital requirements for interests in bitcoin and other crypto assets globally regulators‘plans to protect itself from threats to financial stability from the volatile market.
The Basel Committee on Banking Supervision It said Thursday that the banking industry faces increased risks from crypto assets due to the potential for money laundering, reputational challenges and sudden price swings that could lead to defaults.
The panel proposed that a risk weight of 1,250% be applied to a bank’s exposure to Bitcoin and other cryptocurrencies. In practice, that means that a bank may need to hold a dollar in capital for every dollar in Bitcoin, based on a minimum capital requirement of 8%. Other assets with this highest possible risk weight include securitized products where banks have insufficient information about underlying exposures.
While the proposal would introduce strict capital controls, it also shows that regulators are taking the fast-growing market seriously and preparing the banking industry for its widespread adoption. As a result, bitcoin rallied around 5% after the proposal.
The proposal is open to public comment before it takes effect, and the committee said these initial policies are likely to change multiple times as the market evolves. No timeline was specified in the report, but the process for agreeing and implementing Basel rules around the world often take years.

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