New Calls For Tough Cryptocurrency Regulations

Will new tougher regulations for crypto help or hinder?

June 12, 2021

New Calls For Tough Cryptocurrency Regulations

World banking regulators have announced their view that cryptocurrencies should be subject to the toughest bank capital rules, to avoid the volatile products putting the entire financial market at risk.

The Basel Committee on Banking Supervision, a major organisation made up of regulators from many of the world’s leading financial centres, has suggested that banks looking to invest in crypto-assets should be forced to set aside enough money to cover 100% of potential losses.

No other assets that banks invest in have a 100% capital requirement in this way, which shows that the Basel Committee views cryptocurrencies as much riskier than even the volatile stocks and shares market.

The Uncertainty Around Cryptocurrencies

There are major concerns around banks investing in cryptocurrencies when they have shown themselves to be liable to huge jumps and drops in value. That’s why the Basel Committee has made these recommendations, as they believe that crypto-assets could “present risks for banks as exposures increase, including liquidity risk, credit risk, market risk, operational risk (including fraud and cyber risks), money laundering/terrorist financing risks and legal and reputational risks.”

The proposals from the Basel Committee are now in consultation. They are designed to protect the global financial system in case the crypto market completely crashes and investing banks lose significant sums.

However, the committee has said that it may apply less strict rules to stablecoins. These are a new form of crypto-currency that are tied to the value of a traditional currency, essentially modernising existing currencies. Investing in stablecoins may have the same capital investment rules as other traditional assets, like loans and bonds.

Turbulent Times for Bitcoin

Bitcoin and other cryptocurrencies are going through some challenging times despite their growth over the last few years. However despite the value of bitcoin fell by 40% since it reached a value of around £45,000 in mid-April, this latest regulation news actually saw a spike in the value of the currency by around 5%.

Last month bitcoin’s prices fell due to the Chinese regulators who banned banks and firms from dealing in cryptocurrencies with clients, warning of the risk that trading in them can have.

Around the world, there are different approaches. In the UK the Bank of England governor Andrew Bailey has told investors that they risk losing all of their money if they do invest in crypto-assets as they are not covered by consumer protection schemes, while NatWest has refused to deal with business customers that accept crypto as a form of payment (even if alongside other payment methods).

It’s not the same story globally. In El Salvador it has been announced that bitcoin will become legal tender, the first country to do so.

Amongst lenders, the attitudes to crypto are also split. HSBC has said that it will not deal in crypto-currencies while Goldman Sachs and Standard Chartered have launched their own dedicated crypto trading desks.

Andrew Cook
Andrew Cook
Hi, I'm Andrew and I am a news writer for CompareBanks. My main focus is on digital and online banks and looking at the banking landscape is changing within the UK and around the world.

Related Articles

Major Banking Websites Down On Thursday
Major Banking Websites Down On Thursday
A number of major banking websites in the UK and globally were unavailable for around...
July 22, 2021
Lloyds Group Suffers Online Outage
Lloyds Group Suffers Online Outage
Thousands of customers were left unable to access their Lloyds Bank, Halifax and...
July 20, 2021
Revolut Strikes New Finance Deal; Valued As Britain’s Biggest Ever FinTech
Revolut Strikes New Finance Deal; Valued As Britain’s Biggest Ever FinTech
Revolut has secured new funding which has in turn made its worth climb to £24 billion,...
July 16, 2021
Restrictions On Bank Dividend Payments Lifted
Restrictions On Bank Dividend Payments Lifted
The Bank of England has removed restrictions on banks that banned them from making...
July 16, 2021

Mentioned Banks

About HSBC Bank HSBC is a British banking and financial services company. It is the largest bank in Europe and the seventh largest bank in the world. The bank originated in Hong Kong...
Learn More
About Standard Chartered Standard Chartered is a British multinational bank. Based in London, it is named for the two banks from which it was formed – The Chartered Bank of India,...
Learn More
Offering savings accounts that encourage you to ‘put the interest back into your savings’, Marcus is a trading name of Goldman Sachs. Though you might not have heard of Marcus, you’ll...
Learn More
NatWest, or National Westminster, is a retail and commercial bank based in the United Kingdom. It is one of the ‘Big Four’ UK clearing banks and has more than 7.5million personal banking...
Learn More

Comments

Leave a Comment