Rahul Advani is the global co-head of policy, and Matthew Osborne is the UK and Europe policy director, both head of Fintech Ripple, across borders
Global banks are at an inflection point as crypto assets and distributed ledger technology continue to march steadily towards mainstream financial markets.
The regulatory framework that governs banks’ exposure to these innovations must risk evolving or promoting activities outside of regulated boundaries. The soon-to-be-issued joint letter from major financial institutions to the Basel Committee on Banking Supervision is a call for a clear readjustment to balance responsible innovation and financial stability.
Risk is nothing new for banks. For centuries of managing credit, market and operational exposure, it has been set up independently to bring discipline and surveillance to the digital asset space.
Prudential regulations should focus on risk mitigation regardless of the underlying technology. However, the proposed BCBS CryptoAsset standard imposes punitive capital requirements on many types of cryptographic exposure, preventing banks from participating in areas increasingly controlled by non-bank entities.
Financial markets are already innovating in this sector, as evidenced by the boom in tokenized government bonds, stable and regulated cryptocurrency ETFs. According to a recent report from Boston Consulting Group and Ripple, tokenized assets could reach 18.9tn by 2033.
DLT offers measurable efficiency improvements – faster settlements, lower counterparty risk, programmable liquidity management, and more institutional demand.
Products like BlackRock’s Buidl and Franklin Templeton’s Benji are examples of the traction power of tokenized money market funds. These are not speculative assets, but regulated instruments that provide clear investor needs. Banks play a key role in integrating DLT with traditional financial markets, and their involvement accelerates recruitment and ensures innovation reaches as much as possible.
“If we exclude regulated banks from meaningful involvement in the digital asset market, we risk pushing the activity to less-supervised actors.”
However, current regulatory frameworks threaten to curb progress before these innovations mature.
If banks are prevented from engaging in digital asset markets, the broader market structure could evolve in ways that would allow regulators to have fewer visibility and less levers of control. Excluding regulated banks from meaningful involvement in the digital asset market risks pushing activity against less-secured actors and undermining transparency and accountability.
The most problematic aspect of the current BCBS standard is the 1,250% risk weighting applied to many crypto asset exposures, effectively treating them as toxic assets. This blanketing process contradicts the principles of proportionality and technology neutrality and limits the bank’s ability to provide services that can add real value through existing compliance and governance frameworks.
The handling of crypto assets hosted on unauthorized blockchains is particularly concerning. Unauthorized networks differ in governance, transparency, and security, and some are designed for enterprise use. The blanket approach ignores these nuances and the increased acceptance of unauthorized blockchains for regulated financial use cases.
The restrictive criteria for stubcoin are similarly flawed and create any cliff edge. Fully backed Fiat stubcoins regulated for value stability still face a risk weight of 1,250% just because they are issued on public blockchains. This creates a de facto parallel regulatory standard for steady coins that ignores careful real-world improvements and institutional governance, and overlooks evolving stability models and regulatory advances beyond the objectives of the BCBS standard.
A more risk-sensitive approach is needed. This allows for a more nuanced environment for innovation and encourages a globally consistent regulatory baseline. A technology-neutral approach that follows the principles of “same activities, same risks, same regulations” is essential to ensuring a balanced and resilient financial ecosystem.
Perhaps the most urgent is the risk of regulatory fragmentation. The EU, the UK, Singapore and Hong Kong all implement the BCBS CryptoAsset standard differently. This creates a competitive imbalance and opens the door to regulatory arbitration. This is exactly what Basel was trying to avoid.
A harmonious approach allows banks to operate on equal arenas, streamline cross-border compliance and strengthen market integrity. The timeline of new round consultations and revised implementations is timely and practical, adjusting cross-border approaches, reassessing capital and exposure treatments, and creating careful and careful rules for the future.
The moment you choose
Regulators are right to be cautious, but they must be agile too. While current frameworks aim to protect financial stability, risk is becoming a barrier to innovation and mistakenly increasing systematic vulnerability.
We recommend that BCBS resume CryptoAsset standards and conduct thorough reviews with meaningful industry inputs. A risk-sensitive, principled approach empowers banks and crypto indigenous peoples to responsibly shape the future of their finances as well.
It’s time to update the rulebook to ensure that it matches the purpose of a digitally converted financial system, rather than lowering the rules. The path to a safer and more comprehensive marketplace is to guide banks with the right tools, the right rules and the right regulatory mindset rather than bystanding them.
