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A group of industry associations has pushed back against a second Basel Committee on Banking Supervision consultation on the rules on investments in crypto assets by financial institutions, calling for a host of changes.

In November, in the face of industry opposition, the Basel committee agreed to revisit its proposed punitive rules that would require banks to set aside enough capital in reserve to cover any losses on bitcoin holdings in full, equivalent to existing banking capital rules on the most riskiest investments.

However, with a second consultation now out, a group of eight trade associations - including the Global Financial Markets Association, the Futures Industry Association and the International Swaps and Derivatives Association - have once again raised objections.

Some parts of the second consultation "would meaningfully reduce banks’ ability to—and in some cases effectively preclude banks from—utilising the benefits of distributed ledger technology (“DLT”) to perform certain traditional banking, financial intermediation and other financial functions more efficiently.

"As a result, banks would be limited in their ability to respond to their customers’ demand for access to cryptoasset products and services. That outcome is not in the best interests of customers, investors or the financial system more broadly. Indeed, the role of banks in the financial system and the scope of the financial sector within the purview of prudential regulators could be affected."

Among the parts of the consultation that the group objects to is what it calls the "prohibitive" exposure limit to Group 2 crypto assets to one per cent of a bank's Tier 1 capital calculated on a “double-gross” basis by adding the long and short positions without any hedging recognition.

Instead, the associations call for an exposure limit calculated on a net basis, calibrated to five per cent of Tier 1 capital and accompanied with disclosure to supervisors of gross positions.

The associations also object to the addition of an infrastructure risk add-on for all Group 1 cryptoasset exposures, arguing that it is unnecessary and looks to address risks that are already managed by the existing prudential framework.

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