The 2% cap on cryptocurrency reserves in banks will go into effect on January 1, 2025. The study cites operational losses due to a bank’s failure to comply with AML or CFT regulations.
In its recently published Prudential Treatment of Crypto Asset exposure report for December 2022, the Bank for International Settlements (BIS) said that banks may now retain 2% of their reserves in cryptocurrency. Until last June, the BIS authorised only a few institutions to keep no more than 1% of their reserves in cryptocurrencies.
Effective January 1, 2025, the policy identifies crypto assets and the acceptable means of processing them.
As defined in the paper, Group 1 assets consist of both tokenised conventional and digital assets with stabilising concrete measures. And in Group 2, digital assets don’t fit any categories.
According to the report’s recommendations, banks’ financial exposures to Group 2 crypto assets should not exceed 2% of the banks’ Tier 1 capital.
As a result, the new guidelines permit financial institutions to explore various cryptocurrencies to boost their reserves.
The Committee will give extra thought to how Central Bank Digital Currencies (CBDCs) should be treated as they are introduced.
The study also cautions that financial institutions may suffer operating costs and reputational harm if they fail to comply sufficiently with anti-money laundering and counter-financing of terrorism regulations (including penalties).