LONDON : Banks should take a conservative approach to setting aside capital to cover risks from"unbacked" crypto assets on their books, the global Basel Committee of banking regulators said in proposals on Thursday which now also cover blockchain.
As a result, regulators like the Basel Committee are worried about the potential risks to the financial system from the lightly regulated crypto sector even though it is still small relative to the size of global stock, bond and derivatives markets. The Committee's proposal said cryptoassets which are not backed by assets like traditional currencies, and stablecoins that do not have effective stabilisation mechanisms, should continue to be subject to a conservative prudential treatment with regard to capital set aside for potential losses.In June last year, Basel had published a first consultation on the crypto sector, which proposed that banks must hold enough capital to cover losses on any bitcoin holdings in full.
The latest Basel proposals include new elements such as extra capital to cover"evolving risks" from distributed ledger technologies or blockchain, which underpins cryptoassets.
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