Giovanni Sabatini

New regulations on crypto assets must not penalise banks, writes Giovanni Sabatini, general manager of the Italian Banking Association.


The Bracken column is named after Brendan Bracken, the founding editor of The Banker in 1926 and chairman of the modern-day Financial Times from 1945 to 1958.



The crypto asset sector has undergone significant changes and evolution in the past year. Despite rapid growth and widespread adoption of crypto assets internationally, the market remains highly volatile and susceptible to market fluctuations. Some crypto assets have experienced significant losses, highlighting the vulnerability of the sector and the need for greater regulation. The inability of actors such as defunct cryptocurrency exchange FTX to withstand market pressure and the absence of solid regulatory frameworks have also contributed to the market’s instability.

In recent years, public interest in crypto assets has grown globally, albeit heterogeneously across countries. A 2021 study conducted by the Board of Governors of the Federal Reserve System showed that in the US — where the use of such instruments has been most widespread — 12% of adults said they had used or held crypto assets in 2021. At the euro area level, according to the study on the payment attitudes of consumers in the euro area, the share of holders is estimated at 4%.

Considering the growing demand for crypto assets, we believe that the definition of a prudential treatment is a key component for a regulatory framework on crypto assets that would help mitigate the related risks and place these new instruments in a regulated environment. Only in this way could intermediaries set up a sound, and hopefully attractive, offer in this new market segment.

The Italian Banking Association (ABI) actively contributed to the work carried out by the Basel Committee on Banking Supervision (BCBS) aimed at the creation of an internationally harmonised standard for the prudential treatment of crypto assets, by participating in the June 2021 and June 2022 public consultation rounds that led to December’s final report.

Room for improvement

As a general observation, the final BCBS framework remains quite conservative in terms of capital requirements, with the structure largely unchanged from the proposal set out in the June 2022 consultation — for example in the categorisation of crypto assets into four groups: 1a, 1b, 2a and 2b. The final standard does, however, include some improvements and enhancements that we at the ABI were advocating for, which could help create a level playing field for all operators that are about to have exposures in crypto assets and/or offer services in this area.

This said, we believe there may be still room for improvement of this prudential scheme. The proposed prudential treatment of Group 2 crypto assets (the application of a 1250% risk weight) and the proposed 2% of Tier 1 capital limit for total crypto asset exposures represent an obstacle to the provision of crypto asset services that are closely dependent on such exposures.

it is crucial to remove any competitive advantage for less reliable actors

Banks are, in effect, penalised under such proposals. This is because they cannot compete on an equal footing with other entities — namely fintechs, big techs and new players such as crypto assets service providers (Casps) — which are not subject to the same capital requirements. Looking at the EU’s proposed Markets in Crypto-Assets regulation as a reference, Casps would be held to less strict regulatory and supervisory requirements.

A prudential treatment would have to introduce appropriate precautions to maintain financial stability while ensuring consumer protection. Thanks to their expertise in risk management, banks could introduce the same appropriate safeguards that they have on other asset classes within their crypto assets service offerings. In this regard, it is crucial to remove any competitive advantage for less reliable actors and to create a robust and resilient market.

As part of the EU implementation of the Basel standard, one way forward could be the provision of a legislative proposal already in the banking package (transposing the BCBS package known as Basel III plus), which is currently going through the legislative process. With a strong consensus among the co-legislators on the building blocks of the standards to be specified in Level 1, Europe would have a set of standards that would come into force as of January 1, 2025. This is well ahead of the US, which has yet to submit its draft for the implementation of Basel III plus.

We recommend a level playing field for the future.

Giovanni Sabatini is general manager of the Italian Banking Association (ABI).


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