The Basel Committee on Banking Supervision (BCBS), which is an international organization of central banks, released a paper on digital assets on December 12. In the paper, the BCBS called for the creation of standardized rules for digital assets.

The Crypto Market is Significant

The BCBS acknowledges that the crypto sector is significant enough to warrant monitoring by central banks globally. However, it also noted that when compared to the international financial system, the sector was still quite tiny.

In the paper, BCBS says that the growth of the crypto sector poses a growing threat to central banks. For instance, it raises concerns about the stability of the financial sector. It cites issues such as fraud, money laundering, terror financing, and the volatile nature of cryptocurrencies. The paper continues to say that if commercial banks are allowed to participate in the crypto sector, they should be prudent.

No Discussion of Central Bank Digital Currencies

While the BCBS discusses cryptocurrencies in the paper, it emphasizes that this paper is not discussing CBDCs. It revealed that it was working on a separate report for CBDCs.

Guidelines for Recommendations

In the paper, the BCBS is calling for input on how the crypto sector can be regulated. It sets out a few guidelines on the creation of such a framework. For instance, it calls for the creation of minimum standards. Using these minimum standards, central banks can then add on to them as the situation demands.

It also calls for equal treatment. As such, traditional assets and crypto-assets that come with similar risks should be given similar treatment. Consequently, it will not lead to the stifling of technologies related to crypto. The paper also calls for simplicity when creating a regulatory framework; any regulation created to regulate crypto should be based on an existing framework. Such regulation should also be flexible. The BCBS has provided a page where anyone can send his or her recommendations. All feedback should be sent by March 13, 2020.

The Implications

The BCBS committee operates under the Bank of International Settlements, which is considered the central bank of central banks. Any policy developments coming out of the organization will no doubt have a major impact on the financial system.

Notably, the report does not seem to hint restriction of the crypto sector. Rather, it appears to acknowledge that the sector is here to stay. However, it wants the creation of standardized rules for the sector. Currently, crypto regulation is a patchwork of rules around the world. It can prove tough for even the most avid entrepreneurs to navigate through when trying to invest in the crypto sector.

The creation of standardized rules could prove to be a positive development for the sector. If central banks adopt the recommendations that will be released by the Basel Committee, it will make it easier for investors to navigate through legal requirements when investing in the crypto sector internationally. The rules that are created could help to make the crypto sector safer and encourage more people to invest in the sector.

Image Source: Flickr 

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