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BCBS Proposes Regulation for Stablecoins! The Basel Committee on Banking Supervision (BCBS) is preparing to redefine stablecoins. This initiative comes at a time when the SEC is beginning to tighten regulations on stablecoins and all cryptocurrencies.
The global banking regulator BCBS recently announced its plans on how to determine the risk of stablecoins compared to volatile assets such as Bitcoin. BCBS aims to align stablecoins more closely with traditional assets and balance the preferential treatment they currently receive.
According to BCBS’s current assessment, it proposed a maximum risk weight of 1,250% for cryptocurrencies. This rate signifies the institution’s strict stance on cryptocurrencies. Regulators previously recognized stablecoins as eligible for Group 1b regulatory treatment due to their effective balancing mechanisms despite banks being required to allocate substantial capital to cover their exposure to riskier assets.
But the situation will change according to new plans. Stablecoins may now face stricter rules. These updates become crucial for banks, as it will also change how they categorize and allocate capital for stablecoins. The main goal here, as stated, is to balance stablecoins in the same category as traditional assets in terms of risk weight.
Why are Stablecoins Being Redefined?
There are several reasons for the BCBS’s attempt to redefine stablecoins. Firstly, stablecoins are becoming a vital component of the cryptocurrency market. Developers design stablecoins to mitigate cryptocurrency volatility and enhance their utility. Therefore, they can contribute to the broader acceptance and adoption of cryptocurrencies.
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Secondly, stablecoins pose potential risks that can destabilize the financial system. When used as collateral, a stablecoin’s failure can impact a wider part of the financial system. Therefore, the BCBS is taking steps to understand and manage the risks of stablecoins.
What Could be the New Regulations for Stablecoins?
The new regulations proposed by the BBSC for stablecoins can be summarized as follows:
- Stablecoins will have the same risk weight as traditional assets.
- Stablecoins must meet specific financial and operational requirements.
- Stablecoin issuers will have certain financial responsibilities.
Experts anticipate that these regulations will diminish stablecoin risks and foster a more stable cryptocurrency market.
A New Era in Crypto Regulation
The BBSC’s efforts to redefine stablecoins signify the beginning of a new era in cryptocurrency regulations. This move shows the increasing regulatory pressure on cryptocurrencies.
In the future, more progress is expected in the regulation of cryptocurrencies. These developments will shape the future of the cryptocurrency market.