Today the Basel Committee on Banking Supervision published updates to crypto-asset rules for bank compliance. It also released the final disclosure framework. The changes to the rules appear relatively minor, compared to earlier plans. In the latest consultation, the Committee threatened to treat traditional digital securities on public blockchains as having the equivalent risk as cryptocurrencies. This would block banks from participating in tokenization initiatives on public blockchains because they would be prohibitively expensive. However, the changes don’t mention permissionless blockchains at all, which is good news for bank tokenization efforts.

Likewise, two of the biggest proposed amendments re stablecoins were watered down. The consultation suggested all stablecoin reserves have to be bankrupt remote relative to the issuer and stablecoin custodian. The final standard states that banks that only provide custody services to a stablecoin are not required to keep cash balances separate from other bank deposits. Hence, provided the bank isn’t the stablecoin issuer, this allows bank accounts to be used for stablecoin reserves. The EU’s MiCA regulation mandates a high proportion of reserves to be held at banks (30-60%).

Reverse repo and repo

The Basel Committee also considered banning the use of securities finance transactions, such as reverse repurchase agreements (reverse repos) in stablecoin reserves. This involves stablecoin issuers lending their cash reserves to banks and receiving collateral as security. The new rules allow very short term reverse repo agreements provided they are over collateralized by high quality marketable securities. For example, Circle’s USDC lends around 60% of its reserves to banks in this way overnight.

However, the marketable securities have to be of the highest quality. A footnote to the Tether stablecoin reserves shows it has overnight reverse repos representing over 10% of its assets. We believe the quality falls short of the Basel requirements because Tether’s lending is secured by collateral of A2 credit rating which is only upper-medium in quality. By contrast, USDC’s collateral is A1. Tether also wouldn’t qualify as low risk for banks because at least 16% of the assets it holds don’t match Basel requirements.

While high quality reverse repo is okay, repo is not because the Committee considers it as expanding the balance sheet of the stablecoin issuer – repo involves the issuer lending securities and receiving cash. Likewise, Basel bans securities received from collateral swaps, because they could temporarily lower the quality of securities held. With some limitations, a national regulator can allow repo and collateral swaps.

Other changes

The original Basel rules allowed for some limited hedging of cryptocurrencies for certain assets. Cryptos qualify as eligible for hedging if there’s an exchange traded ETF or ETN for that coin. Until recently that mainly meant Bitcoin and Ether, but the range of ETNs has expanded, particularly in Europe. However, the Basel updates tighten the criteria that the ETF/ETN must also be centrally cleared.

Stablecoins now have more detailed rules on attestations and audits. There must be a third party verification at least twice a year and an external audit annually.

Meanwhile, the Committee previously postponed the implementation of the rules to January 2026.

Update: this was a breaking news story, so it has been substantially expanded.