Basel Committee Reevaluates Bank Encryption Rules for Permissionless Blockchains, Stablecoins – Ledger Insights

Basel Committee Reevaluates Bank Encryption Rules for Permissionless Blockchains, Stablecoins – Ledger Insights


During its last meeting, the Basel Committee on Banking Supervision considered the treatment of permissionless blockchains and stablecoin classifications. In December last year, the committee published the final rules for bank capital requirements when engaging with crypto-assets. It allowed most tokenized securities to be treated as low risk, similar to traditional securities.

However, the final publication had reservations about public blockchain. It stated in December, “The Committee will continue to reflect on whether the risk posed by cryptoassets using permissionless blockchains can be sufficiently reduced to allow inclusion in Group 1 (lower risk), and if so, what adjustments to the classification conditions would be necessary.”

The latest announcement yesterday suggests that additional regulations may be coming down the line for permissionless blockchains. The committee said there would be a further consultation for “any potential revisions”. It added that the committee was considering the eligibility criteria for Group 1 (lower risk) stablecoins without providing further details.

Bank interest in permissionless blockchains

Since the publication of the final Basel rules in December, there have been several moves by banks against permissionless blockchains. Yesterday, Swift announced a trial period with more than a dozen institutions to experiment with public blockchain interoperability.

It has been the first bank-backed stablecoin issuance by a globally systemic bank, Societe Generale. However, it has yet to have any takers. Australia’s NAB also issued a stablecoin, and several Japanese banks are gearing up to do so.

In the case of digital securities, ABN Amro helped a client issue a bond on a permissionless blockchain. Germany’s DZ Bank and DekaBank invested in the Siemens bond issued on a public blockchain.

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Banks – including the head of Italy’s banking association – have already argued that Basel puts them at a disadvantage compared to others regarding blockchain. In many cases it is compared to startups.

But if there are restrictions on public blockchain tokenized securities, the challenge is that non-banks with which they compete do not have such restrictions. Several asset managers are taking an interest in tokenized securities, including on the public blockchain, with the Siemens bond as an example. Franklin Templeton’s tokenized money market fund has passed $270 million in assets under management. There is a risk that additional regulations will make it uneconomical for banks to compete on the buy or sell side when it comes to tokenization.


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