NCFAs innovation and funding ecosystem

OSFI Consultation on Prudential Treatment of Cryptoasset Exposures

McCarthy Tetrault | Ana Badour | Jul 6, 2021

OSFI  - OSFI Consultation on Prudential Treatment of Cryptoasset ExposuresOn June 10, 2021, the Basel Committee on Banking Supervision (the “Basel Committee”) released a public consultation paper on the prudential treatment of cryptoasset exposures (the “Report”), which we previously discussed in a separate blog post. In the Report, the Basel Committee proposed a framework for the prudential treatment of cryptoassets and requested feedback on the proposal.

On July 5, 2021, the Office of the Superintendent of Financial Institutions (“OSFI”) published a letter (the “Letter”) highlighting the Report to Canadian federally regulated financial institutions (“FRFIs”) and requesting feedback from FRFIs on the consultation questions raised in the Report and additional related questions. Comments on the Letter are due to OSFI September 30, 2021. In addition, OSFI also encouraged Canadian FRFIs to provide comments directly to the Basel Committee on the Report, which are due September 10, 2021.

In brief, the Report proposes that cryptoassets be classified into groups 1 and 2. Group 1 cryptoassets must meet a series of conditions intended to identify “stablecoins” and tokenised traditional cryptoassets. Group 2 is a residual category that captures all cryptoassets not in Group 1 (including bitcoin). Assets in Group 1 would be subject to less conservative minimum risk-based capital requirements than Group 2 assets (which would be subject to a 1250% risk weighting). The Report also provided guidance for banks and supervisors on mitigating cryptoasset-specific risks.

See:  Snapshot: the regulatory framework for financial services compliance in Canada

OSFI is now considering how to structure its own prudential regulation framework for cryptoassets, and accordingly, requests feedback from FRFIs on the consultation questions highlighted in the Report and the following additional questions noted in the Letter:

  1. How would the proposed capital treatment for crypto assets in the Report interact with the FRFI’s current or contemplated business models in this space?
  2. Are there further regulatory capital or other prudential perspectives, beyond those contemplated in the Report, which OSFI should consider in more detail with respect to indirect crypto asset exposures, such as through crypto asset Exchange Traded Funds (ETFs)?
  3. Are there additional risks from hedging a cash-settled exposure with a direct exposure (and vice versa) that should be considered, such as basis, operational, or technology risks?
  4. Are there additional considerations relevant to non-bank FRFIs that OSFI should be mindful of when developing a prudential framework for crypto assets?
  5. Can the FRFI identify any existing crypto assets that it believes should qualify for Group 1 treatment that do not based on the proposed classification conditions? What modifications to the classification conditions would be necessary to allow these crypto assets to qualify for Group 1 treatment?
  6. For Group 2 crypto assets, the Report does not provide any recognition to the netting of long and short positions, while it notes there are additional risks to speculative short positions. Is this a prudent capital treatment with appropriate incentives?

Continue to the full article --> here


NCFA Jan 2018 resize - OSFI Consultation on Prudential Treatment of Cryptoasset Exposures The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

Latest news - OSFI Consultation on Prudential Treatment of Cryptoasset ExposuresFF Logo 400 v3 - OSFI Consultation on Prudential Treatment of Cryptoasset Exposurescommunity social impact - OSFI Consultation on Prudential Treatment of Cryptoasset Exposures

FFCON21 ON-DEMAND VIDEOS NOW AVAILABLE!



FFCON21 on demand videos - OSFI Consultation on Prudential Treatment of Cryptoasset Exposures

Support NCFA by Following us on Twitter!