Chamber of Digital Commerce Submits Comment Letter on Digital Assets to Basel Committee
March 23, 2020
Chamber of Digital Commerce Believes that not all Digital Assets Present the Same Levels of Risk – Recommends to Basel Committee that They Should Be Assessed on a Case by Case Basis as Currently Done for Other Similar Products and Services
The Chamber of Digital Commerce (the “Chamber”) recently submitted a letter for consideration by the Basel Committee on Banking Supervision (the “Committee”) with respect to its December 2019 discussion paper regarding the prudential treatment for crypto-assets (the “Discussion Paper”).
While the Committee appropriately recognizes some risks associated with high-risk crypto assets, deserving of a “conservative prudential treatment;” a one size fits all approach to these assets is not warranted or appropriate.
Specifically, such an approach fails to recognize the differences in the risks associated with various activities that a bank may undertake regarding these crypto assets. Because crypto-assets present varying considerations and risks based on their economic function and use by a bank, the Chamber believes that the Committee should analyze the risk profile of a crypto-asset through a framework that takes into account:
- the economic function of the crypto-asset and unique attributes of the crypto-asset at issue; and
- the activity in which a bank engages with respect to such crypto-asset. Once the risk profile is properly evaluated, a tailored capital requirement can be determined under a similar approach to the one used for traditional financial assets.
This approach utilizes the principle of “same risk, same activity, same treatment” for crypto-assets that are similar—though not necessarily identical—to traditional asset classes. We provided an illustrative chart at the end of our comments to demonstrate that even those assets that may currently considered “high risk” have different risk considerations.
Crypto-assets are evolving and the risks present today will evolve as the market develops. As a result, we recommended that the treatment of banks’ involvement with these assets must be agile to meet rapid changes in the market. Different activities that a bank may undertake have materially different risks and this should impact their prudential treatment.
The Chamber’s approach will allow banks and regulators a flexible approach to properly calculate an appropriate amount of capital in the face of a rapidly evolving industry.
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