Exploring the Basel Committee’s Draft on Crypto Asset Exposure

On October 17, 2023, the Basel Committee on Banking Supervision released a consultative document concerning the disclosure of cryptoasset exposures by banks, seeking public feedback until January 31, 2024. The document is accessible on the BIS website. This comes following the Committee’s publication in December 2022, titled “Prudential Treatment of Cryptoasset Exposures”, which introduced prudential requirements for banks dealing with cryptoassets, set to be enforced starting January 1, 2025.

Standardized Disclosure Templates

To ensure uniformity in disclosures, the Committee has devised standardized disclosure templates encapsulated in a new chapter of the Basel Framework, DIS55 – Cryptoasset Exposures. These templates embody the disclosure requirements outlined in paragraphs SCO60.128 to SCO60.130 of the consolidated Basel Framework. Through DIS55, the Committee aims to foster market discipline and diminish information asymmetry between banks and market stakeholders. This initiative is part of the broader effort to integrate cryptoasset regulations within the overarching requirements stipulated in chapter DIS10 of the Basel Framework, covering the scope, reporting location, frequency, and assurance of Pillar 3 data disclosure.

Templates Detailing Cryptoasset Exposures

The draft includes several templates to categorize and detail banks’ cryptoasset exposures:

Template CAE1: Offers a glimpse into a bank’s cryptoasset exposures according to prudential classifications and the associated capital requisites.

Template CAE2: Focuses on the accounting classification of exposures to cryptoassets and cryptoliabilities.

Template CAE3: Addresses liquidity requisites for exposures to cryptoassets and cryptoliabilities.

Each template mandates banks to disclose a range of information, such as the accounting classification, liquidity risk parameters, and the capital requirements pertinent to their cryptoasset exposures.

Emphasis on Feedback and Further Clarification

The Committee is soliciting feedback on all facets of the proposals delineated in the consultative document, including specific issues like the detail of classification condition assessment and the notion of “window-dressing”, where period-end amounts reported might not reflect the actual risk due to significant variance in exposure values during the reporting period. Additionally, the document hints at the potential introduction of a materiality definition concerning cryptoasset exposures disclosure, positing a 5% threshold of the bank’s total cryptoasset exposures as an example.

Moreover, the Committee is considering augmenting the disclosure requirements to provide more insight into how banks assess compliance with the classification conditions of Group 1 cryptoassets. Proposed additional disclosures could delve into the functioning of stabilisation mechanisms, ownership rights of reserve assets, and the risk management measures instituted by the entities engaged in cryptoasset operations.

Implementation Timeline

The proposed disclosure requirements encapsulated in DIS55 are slated for implementation on January 1, 2025, aligning with the enforcement date of the prudential requirements delineated in SCO60. The Committee intends these measures to apply to internationally active banks at the top consolidated level.

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