The chair of the Basel Committee and international regulatory officials admit that current capital rules for crypto exposures are inadequate and require urgent revision, according to the FT. The framework’s proposed 1.250% risk weight for “Group 2” assets and a 1% aggregate cap on Tier 1 capital are seen as measures that could exclude banks from the crypto market and fragment global regulation. The debate centers on whether prudential treatment appropriately reflects the evolving risk profile of different cryptoassets, including stablecoins.
The draft prudential treatment classifies certain cryptoassets as “Group 2,” applies a 1.250% risk weight to those exposures, and sets a cap of 1% of total aggregated exposure relative to Tier 1 capital. A risk weight measures how much capital a bank must reserve against an exposure—the higher the weight, the more capital required. The committee chair, Erik Thedéen, acknowledged that the initial initiative focused on highly volatile cryptocurrencies and is being reevaluated.
The document underestimates market evolution, particularly the growing adoption of stablecoins designed to maintain parity with fiat currency or reserves, which has changed the relative risk profile within the ecosystem. A stablecoin is a digital asset whose value seeks stability through pegging or reserves, and its prudential treatment differs because of its purpose and backing mechanism. The current proposal applies rigid rules without adequately distinguishing between assets of different natures.
Reactions, market risks and implications for traders and managers
The international response has been critical and heterogeneous, with U.S. and U.K. officials rejecting literal application of the rules. Michelle Bowman, Vice Chair for Supervision of the Federal Reserve, described the rules as “not very realistic” and made clear that Washington will not adopt them as is. In contrast, Singapore has postponed implementation from January 2026 to January 2027 (or later), while Hong Kong plans to apply its framework in January 2026, creating a fragmented regulatory landscape.
For traders and managers, the main operational implication is the possible reduction of institutional entry points and custody banking services, which can erode liquidity in regulated markets and shift activity toward less supervised platforms. In addition, strict rules raise the cost of capital for banks that provide custody or services to crypto funds, which can affect ETF flows and derivative structure, including open interest, skews and hedging costs.
The call is for a proportionate, risk-differentiated approach that treats audited, backed stablecoins differently from uncollateralized, highly volatile tokens. Jurisdictional heterogeneity could translate into regulatory arbitrage opportunities but also higher hedging costs and a more segmented liquidity landscape.
The committee’s shift and pressure from key regulators signal a phase of review and negotiation for the prudential agenda on crypto.
