Basel Committee to Reconsult on Crypto; Outline Climate Change, G-SIB Policies

Following a meeting last week, the Basel Committee has issued a release outlined progress on three key issues, climate-related financial risks, the capital treatment of cryptoassets, and the methodology used for G-SIB (Globally Systemically Important Banks) exposures

The committee says it has agreed to a finalised set of principles for the effective management and supervision of climate-related financial risks. This follows a consultation on these principles last year. The new guidelines, which will be published in the coming weeks, seek to promote a principles-based approach to improving risk management and supervisory practices to mitigate climate-related financial risks, the committee says, adding they are designed such that they can be adapted to a diverse range of banking systems in a proportional manner.

“The publication of these principles forms part of the committee’s broader assessment of potential measures – spanning disclosure, supervisory and regulatory measures – to address climate-related financial risks to the global banking system,” the committee says in a release. “The committee will provide an update on its work across these dimensions in due course. It will continue to collaborate with other global forums on climate-related financial risk initiatives.”

The thornier issue of the treatment of cryptoassets on banks’ balance sheets has also been addressed with the Basel Committee saying it will issue a second consultation paper following an initial exercise which received, and continues to receive, pushback from the financial services industry, which argued the capital rules on banks were too onerous and would exclude the banking industry from an asset class in great demand amongst their client base.

Recent developments have further highlighted the importance of having a global minimum prudential framework to mitigate risks from cryptoassets,” the committee says in the release. “Building on the feedback received by external stakeholders, the committee plans to publish another consultation paper over the coming month, with a view to finalising the prudential treatment around the end of this year.”

On G-SIB, the committee says it has completed its targeted review on the treatment of cross-border exposures within the European Banking Union (EBU) on the methodology for G-SIBs. Currently, US authorities take a stricter view of exposures than their EU peers, meaning there is often an imbalance in how banks are rated across the globe.

The committee says it recognises the progress that has been made in the development of the EBU and has agreed to give recognition in the G-SIB framework to this progress through the existing methodology, which allows for adjustments to be made according to supervisory judgment.

Under the agreement, a parallel set of G-SIB scores will be calculated for EBU-headquartered G-SIBs and used to adjust their bucket allocations. The parallel scores recognise 66% of the score reduction that would result from treating intra-EBU exposures as domestic exposures under the G-SIB scoring methodology. The Committee says the agreement will not affect the classification of any banks as G-SIBs or the scores or bucket allocations of banks outside of the EBU.

In due course, it adds, the EU authorities will publish a more detailed description of the methodology and requirements for relevant EBU-headquartered banks to publish the cross-jurisdictional indicators needed to calculate the parallel set of scores.