Banks, Including JPMorgan, Mandated to Disclose Crypto Holdings Under New Basel Committee Plan
The Basel Committee on Banking Supervision has unveiled a new plan that will require banks with cryptocurrency exposure to disclose their digital asset holdings. This announcement, made by the committee responsible for establishing banking norms in traditional finance, aims to introduce transparency regarding banks' digital asset exposures and associated risks.
The year 2023 has witnessed financial turbulence, with significant events such as the collapse of the cryptocurrency exchange FTX, which led to a substantial drop in Bitcoin's price, the lowest since 2020. Failures of regional banks like Signature Bank and Silicon Valley Bank have further contributed to the choppy financial landscape.
The proposed rules by the banking regulation committee come in response to the belief held by international regulators that this year's banking turmoil was partially triggered by the sudden surge in interest surrounding cryptocurrencies.
Under these new regulations, banks will be compelled to disclose the size and nature of their unbacked cryptocurrency holdings, including assets like Bitcoin and Ethereum. This move is primarily aimed at enhancing transparency within the industry and mitigating potential systemic risks.
The Basel Committee stated, "The March 2023 banking turmoil was the most significant system-wide banking stress since the Great Financial Crisis in terms of its scale and scope. In response, the Committee is today publishing a report that assesses the causes of the turmoil, the regulatory and supervisory responses, and the initial lessons learnt."
Furthermore, the committee revealed its plans to publish a consultation paper in the near future, outlining "a set of disclosure requirements related to banks' crypto asset exposures." These disclosures will complement the prudential standard for such exposures published in December 2022.
It's worth noting that the Basel Committee, consisting of banking authorities from 28 global jurisdictions, including the United States, the United Kingdom, and the European Union, had previously indicated its intent to monitor and potentially modify cryptocurrency-related norms. However, the introduction of separate disclosure rules for banks' crypto exposure is a new development.
If these regulations are implemented, major banks like JPMorgan will be obligated to reveal their cryptocurrency holdings. JPMorgan notably became the first major U.S. bank in July 2021 to grant its financial advisors the ability to offer cryptocurrency funds to wealth management clients. The bank also extended access to an in-house passively managed Bitcoin fund to its Private Bank wealth management customers.
JPMorgan has been actively exploring the digital asset space with the launch of its division, Onyx, dedicated to digital assets, and the introduction of JPM Coin, a digital currency designed for internal euro and dollar transfers, launched in 2019.
Despite its involvement in the crypto space, JPMorgan's retail bank, Chase, in the U.K., has chosen to restrict customers' access to cryptocurrency-related transactions. The bank cited the need to protect customers from crypto-related scams and fraud as the reason for this decision.
Notably, other banks, including NatWest Group plc and Banco Santander, have also imposed tighter restrictions on U.K. customers looking to engage in cryptocurrency activities. These measures include limits on the amounts customers can send to crypto exchanges and restrictions on real-time payments to such platforms.
As the crypto industry continues to evolve, the Basel Committee's new disclosure requirements signal a growing focus on regulating and supervising digital assets within the traditional banking sector. The implementation of these rules could have significant implications for how banks engage with cryptocurrencies in the future.