A coalition of major finance industry groups has urged global regulators to rethink a set of prudential rules for crypto exposures, warning that the standards as written would effectively make it uneconomical for banks to participate in digital-asset markets. The appeal — sent as an open letter to the Basel Committee on Banking Supervision — frames the dispute as a pivotal moment for how traditional finance will engage with a sector that has evolved rapidly since the rules were first drafted.
Industry lobbyists argue the 2022 Basel standards, which set out capital and disclosure treatments for banks’ cryptoasset exposures, are now overly conservative and do not reflect improvements in market structure and risk management. The letter asks the committee to pause implementation, gather fresh evidence, and recalibrate the measures before they take effect. Regulators contend the rules are designed to protect depositors and the wider financial system from the volatility and operational risks that have punctuated crypto’s development, but the debate highlights a widening gulf between prudential caution and commercial demand to incorporate digital assets into mainstream banking services.
What the Basel standards require and why industry objects
The Basel framework introduced a set of strict capital charges and disclosure obligations for banks that hold, custody or trade cryptoassets. The measures link higher risk-weights to exposures in crypto, require banks to hold materially more capital against such positions than for many traditional assets, and mandate standardized public disclosures of crypto-related activities. Supporters of the rules say they correct for concentrated tail risks exposed by the sector’s past failures; critics say they are blunt instruments that fail to distinguish between different types of crypto exposures or the variety of controls banks can deploy.
Industry bodies say the market has changed since 2022: custody practices have matured, on-chain analytics and compliance tools have advanced, and a subset of crypto activity — including regulated stablecoins, tokenized securities and well-governed custody services — now bears far closer resemblance to other financial market infrastructures. In their view, the standards’ one-size-fits-all capital treatment will push banks away from offering regulated custody and settlement services, ceding activity to unregulated or offshore providers. That, the letter warns, could reduce transparency, weaken consumer protection and fragment liquidity across geographies.
What the industry looks like today
Although crypto remains a fraction of the global financial system by many traditional metrics, its scale and connectivity have grown quickly. The total market capitalization of crypto assets runs into the trillions of dollars, while daily trading volumes, the rise of tokenized instruments, and an expanding merchant and institutional appetite for certain digital assets have made crypto a material consideration for large banks and asset managers. Meanwhile, banks’ interest in crypto-related services spans custody, prime brokerage, trading, tokenization of assets and infrastructure provision such as custody for institutional clients.
The ecosystem around crypto has also matured: specialist custodians, on- and off-ramp payment providers, and compliance analytics vendors provide tools that banks say can mitigate many of the operational and illicit-finance risks regulators fear. In parallel, regulatory moves — particularly in some jurisdictions — have made it easier for banks to undertake custody and execution services under defined rules. That patchwork of national approaches is part of the industry’s appeal to banks: they can participate in markets where legal frameworks are clear and standards align with domestic supervisory expectations.
Why banks say the standards could be counterproductive
Banks and trade associations contend that punitive capital charges and rigid disclosure rules will raise the cost of offering crypto services to a level that renders business models unviable. Absent a viable, regulated offering, customers may turn to offshore or unregulated platforms that operate beyond the reach of domestic supervisors. From the industry’s perspective, a calibrated approach that recognizes differences between custody of tokenized securities, exposure to volatile native tokens, and appropriately backed stablecoins would keep activity within regulated channels and preserve financial stability while accommodating innovation.
The groups making the appeal include major global trade associations that represent banks, markets and derivatives businesses, alongside segments of the crypto industry. Their asks range from pausing the implementation timetable to re-examining specific capital formulas and to undertaking a targeted consultation with fresh market data. The letter also presses for clearer alignment across jurisdictions so that internationally active banks are not subjected to conflicting rules that hamper cross-border services.
Likely market and regulatory ripple effects
Should regulators accede to industry requests and amend the standard, the immediate impact would be to lower the barriers for banks to offer custody, execution and related services — restoring an onshore regulated option for institutional and retail participants. That could accelerate institutional adoption, deepen liquidity in regulated venues, and buttress market integrity by keeping client assets within banking supervision. Banks could expand product suites to include tokenized asset issuance, structured products tied to digital assets, and regulated custody, unlocking fee pools for established financial firms and giving clients safer channels to access crypto markets.
There would also be downstream effects: payment firms, fintechs, and market infrastructure providers that integrate with banks could see faster demand growth for regulated rails and custody solutions. Investment funds and corporate treasuries might be more willing to experiment with tokenized instruments if they can rely on familiar banking partners for custody and settlement, and market makers could commit capital more confidently to regulated venues.
If regulators refuse to change course, industry bodies warn of other outcomes: banks may decouple from the sector, investors could reduce funding flows to startups that depend on bank relationships, and a bifurcated global market could emerge — onshore, tightly regulated corridors in some countries and less transparent offshore activity elsewhere. That fragmentation would complicate cross-border supervision and could amplify systemic blind spots.
The debate over the Basel rules is as much about policy design as it is about timing. Industry groups want extra time to present new evidence and argue for risk-sensitive calibrations; regulators counter that prudence is necessary after episodes of market failure that inflicted heavy losses on retail investors. The contest will play out in technical consultations, lobbying in national capitals, and potentially in public standards-setting forums. Whatever the outcome, the tussle will shape the shape of bank-crypto relations for years: either hastening integration under clearer, bank-friendly frameworks, or entrenching a guarded separation that leaves crypto largely outside traditional banking supervision.
For now, markets and policymakers will watch whether the Basel Committee reopens its timetable, the degree to which national regulators align with any changes, and how banks and service providers adjust their strategies in response. The stakes are high: the outcome will determine whether the global banking system helps to mainstream crypto under regulated umbrellas — or whether the industry evolves largely at the edges, outside of conventional prudential supervision.
(Source:www.globalbankingandfinance.com)
Industry lobbyists argue the 2022 Basel standards, which set out capital and disclosure treatments for banks’ cryptoasset exposures, are now overly conservative and do not reflect improvements in market structure and risk management. The letter asks the committee to pause implementation, gather fresh evidence, and recalibrate the measures before they take effect. Regulators contend the rules are designed to protect depositors and the wider financial system from the volatility and operational risks that have punctuated crypto’s development, but the debate highlights a widening gulf between prudential caution and commercial demand to incorporate digital assets into mainstream banking services.
What the Basel standards require and why industry objects
The Basel framework introduced a set of strict capital charges and disclosure obligations for banks that hold, custody or trade cryptoassets. The measures link higher risk-weights to exposures in crypto, require banks to hold materially more capital against such positions than for many traditional assets, and mandate standardized public disclosures of crypto-related activities. Supporters of the rules say they correct for concentrated tail risks exposed by the sector’s past failures; critics say they are blunt instruments that fail to distinguish between different types of crypto exposures or the variety of controls banks can deploy.
Industry bodies say the market has changed since 2022: custody practices have matured, on-chain analytics and compliance tools have advanced, and a subset of crypto activity — including regulated stablecoins, tokenized securities and well-governed custody services — now bears far closer resemblance to other financial market infrastructures. In their view, the standards’ one-size-fits-all capital treatment will push banks away from offering regulated custody and settlement services, ceding activity to unregulated or offshore providers. That, the letter warns, could reduce transparency, weaken consumer protection and fragment liquidity across geographies.
What the industry looks like today
Although crypto remains a fraction of the global financial system by many traditional metrics, its scale and connectivity have grown quickly. The total market capitalization of crypto assets runs into the trillions of dollars, while daily trading volumes, the rise of tokenized instruments, and an expanding merchant and institutional appetite for certain digital assets have made crypto a material consideration for large banks and asset managers. Meanwhile, banks’ interest in crypto-related services spans custody, prime brokerage, trading, tokenization of assets and infrastructure provision such as custody for institutional clients.
The ecosystem around crypto has also matured: specialist custodians, on- and off-ramp payment providers, and compliance analytics vendors provide tools that banks say can mitigate many of the operational and illicit-finance risks regulators fear. In parallel, regulatory moves — particularly in some jurisdictions — have made it easier for banks to undertake custody and execution services under defined rules. That patchwork of national approaches is part of the industry’s appeal to banks: they can participate in markets where legal frameworks are clear and standards align with domestic supervisory expectations.
Why banks say the standards could be counterproductive
Banks and trade associations contend that punitive capital charges and rigid disclosure rules will raise the cost of offering crypto services to a level that renders business models unviable. Absent a viable, regulated offering, customers may turn to offshore or unregulated platforms that operate beyond the reach of domestic supervisors. From the industry’s perspective, a calibrated approach that recognizes differences between custody of tokenized securities, exposure to volatile native tokens, and appropriately backed stablecoins would keep activity within regulated channels and preserve financial stability while accommodating innovation.
The groups making the appeal include major global trade associations that represent banks, markets and derivatives businesses, alongside segments of the crypto industry. Their asks range from pausing the implementation timetable to re-examining specific capital formulas and to undertaking a targeted consultation with fresh market data. The letter also presses for clearer alignment across jurisdictions so that internationally active banks are not subjected to conflicting rules that hamper cross-border services.
Likely market and regulatory ripple effects
Should regulators accede to industry requests and amend the standard, the immediate impact would be to lower the barriers for banks to offer custody, execution and related services — restoring an onshore regulated option for institutional and retail participants. That could accelerate institutional adoption, deepen liquidity in regulated venues, and buttress market integrity by keeping client assets within banking supervision. Banks could expand product suites to include tokenized asset issuance, structured products tied to digital assets, and regulated custody, unlocking fee pools for established financial firms and giving clients safer channels to access crypto markets.
There would also be downstream effects: payment firms, fintechs, and market infrastructure providers that integrate with banks could see faster demand growth for regulated rails and custody solutions. Investment funds and corporate treasuries might be more willing to experiment with tokenized instruments if they can rely on familiar banking partners for custody and settlement, and market makers could commit capital more confidently to regulated venues.
If regulators refuse to change course, industry bodies warn of other outcomes: banks may decouple from the sector, investors could reduce funding flows to startups that depend on bank relationships, and a bifurcated global market could emerge — onshore, tightly regulated corridors in some countries and less transparent offshore activity elsewhere. That fragmentation would complicate cross-border supervision and could amplify systemic blind spots.
The debate over the Basel rules is as much about policy design as it is about timing. Industry groups want extra time to present new evidence and argue for risk-sensitive calibrations; regulators counter that prudence is necessary after episodes of market failure that inflicted heavy losses on retail investors. The contest will play out in technical consultations, lobbying in national capitals, and potentially in public standards-setting forums. Whatever the outcome, the tussle will shape the shape of bank-crypto relations for years: either hastening integration under clearer, bank-friendly frameworks, or entrenching a guarded separation that leaves crypto largely outside traditional banking supervision.
For now, markets and policymakers will watch whether the Basel Committee reopens its timetable, the degree to which national regulators align with any changes, and how banks and service providers adjust their strategies in response. The stakes are high: the outcome will determine whether the global banking system helps to mainstream crypto under regulated umbrellas — or whether the industry evolves largely at the edges, outside of conventional prudential supervision.
(Source:www.globalbankingandfinance.com)
