BOE says Britain will Front-Run Capital Rules on Cryptocurrency

ByEdward Thompson

Sep 23, 2021

On Thursday, Sam Woods, the Deputy Governor for the Bank of England, said that they would run front-run global rules if required to prevent banks in Britain from building up big exposure to cryptocurrencies that are not backed by sufficient capital. The Basel Committee, which is the global committee for banking regulators, has begun working on developing capital requirements for banks that will hold cryptocurrencies, such as Bitcoin. They proposed punitive damages and this pushed lenders to say that their involvement in the sector would become prohibitive as a result. According to Woods, the regulatory committee were getting a good grip on the crypto space and the proposals put forward by Basel were ‘quite sensible’. 

Woods said that Britain’s banks did not have material exposures to cryptoassets at this point, but it is apparent that there is significant investor appetite. Moreover, this doesn’t just pertain to retail investors, as institutional investors have also shown some appetite for this market. Hence, this has pushed some of the banks to provide ancillary services to their clients. Woods said that while this may be acceptable, but if it continues to develop into something big, then they would have to ensure that robust capital treatment is in place. 

The crypto industry is growing rapidly, but it can take years for Basel to adopt norms and once adopted, they have to be implemented by members including the European Union, Britain and the United States. Woods stated that they didn’t want companies to stop doing what makes commercial sense, but they will take a conservative approach on capital treatment. Thus, if necessary, they would front run and implement some capital measures. He said that it wasn’t an issue yet. In other news, the final elements of the tougher capital norms that were agreed upon by the Basel Committee over a decade ago in the aftermath of the global financial crisis have not been implemented as yet.

They were delayed for a year till January 23rd to provide banks with some space in order to focus on dealing with the COVID-19 crisis. However, it appears that the new deadline is in doubt once more because the United States, Britain and Europe have yet to decide how these final elements will be put into practice. As per Woods, it remains unclear if the January 2023 deadline will be met, considering that there is a shift in timetables. He did say that the delay wasn’t going to be a big one, but 1st of January 2023 didn’t mean that all firms have to have them in their system.

Some of the banks in the European Union wish to see some of the rules eased off, but Woods said that Britain had no intention of watering down the rules. He stated that their approach was to be seen and also be a robust implementor, when it comes to international standards. This would also apply where the crypto industry is concerned, as it appears to be growing rather rapidly. 

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