- The Basel Committee is seeking to tighten the criteria guiding stablecoins.
- The committee has proposed new standards for the asset class.
- New restrictions have been set for stablecoins that wish to qualify for preferential treatment.
The cryptocurrency industry has come under heightened scrutiny as financial regulators worldwide seek to tighten oversight on the asset class.
Against this backdrop, the regulatory body responsible for consulting on targeted adjustments to tighten standards on banks’ exposures to crypto assets is now proposing new criteria for stablecoins.
BCBS Questions Stablecoin Regulatory Treatment
On Thursday, November 14, the Basel Committee for Banking Supervision (BCBS) published a consultative document outlining 11 new standards to reshape the regulatory standards for stablecoins.
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The document outlined the criteria for the composition of the reserve assets supporting stablecoins, such as liquidity, credit quality, and maturity, to align more closely with the traditional fiat currencies they are pegged to.
The proposed standards will determine the eligibility of stablecoins for inclusion in the esteemed ‘Group 1b’ category of cryptocurrency assets, which allows them to benefit from the preferential regulatory treatment set by the committee.
The committee emphasized that eligibility is restricted to stablecoins issued by regulated entities and must be redeemable at all times.
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To further fortify the regulatory standards, banks will be mandated to perform thorough examinations to ensure that they understand the stabilization mechanisms of stablecoins to which they are exposed and how effective they are.
Additionally, banks are prohibited from allocating over 2% of their core capital to the asset class and will be required to conduct statistical tests demonstrating that stablecoin maintains a stable value.
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