Coinbase, Circle challenge Basel committee's stablecoin requirements

Crypto firms Coinbase and Circle are contesting aspects of a Basel Committee on Banking Supervision proposal introducing stricter criteria for preferential regulatory treatment regarding banks' stablecoin exposure.

The committee published a consultation in December that proposes banks conduct due diligence to ensure they "have an adequate understanding of the stabilisation mechanisms of stablecoins to which they are exposed." 

Proposed requirements determine whether stablecoins will be eligible for a "Group 1b category," which gives preferential regulatory treatment. According to the consultative document, certain standards have to be met, including low volatility and sufficient liquidity. Comments on that document were due March 28. 

Crypto exchange Coinbase said it was disappointed in the committee's approach in a comment letter on March 28. 

"Many of the requirements are not based on the risk of these assets to a bank, but rather reflect other policy objectives which the Committee normally does not incorporate in capital requirements," Coinbase said. 

Coinbase later said in the letter that "The Committee’s choices demonstrate a desire to severely limit the holding, and therefore use, of stablecoins by banks." 

Permissionless blockchains

Circle, which issues the stablecoin USDC, criticized the committee's treatment of permissionless blockchain. In the consultation report, the committee said permissionless blockchains have "unique risks," and so said for now it would not be allowed in Group 1. 

"There is a strong argument to be made that banks should be encouraged to leverage blockchains, cryptography, mobile-enabled wallets and other open-source technologies in order to advance their digital transformation and cybersecurity efforts," Circle said in its March 27 comment letter. "As the Committee knows all too well, the failure of any one bank, erodes confidence in banking. And yet, most banks, particularly small to mid-sized institutions, cannot keep up with the digital transformation space race taking place among larger global banks."

"Rather than stigmatizing blockchain-based financial services, Circle’s successful operating experience and deep partnership with global banking institutions, suggests there is a collaborative model and opportunity at hand, which banks can benefit from and the Committee should encourage," the firm added. 

The Basel Committee on Banking Supervision is a global standard setter, and its members include countries including the U.S., Canada and Japan, among others.