Pierre Rochard warns US regulators over Bitcoin gap in Basel rewrite

Bitcoin Bond Company CEO Pierre Rochard says US regulators’ Basel III revamp cannot quietly decide how banks treat Bitcoin without clearly explaining the rules and evidence behind them.

Pierre Rochard, CEO of The Bitcoin Bond Company, warned US banking regulators that their sweeping Basel III capital rewrite leaves unresolved how Bitcoin-related activities should be treated, a gap he says could create legal risk and shape how much capital banks must hold against the asset.

In a formal comment submitted March 29 to the US Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, Rochard said agencies cannot finalize rules that effectively determine capital treatment for Bitcoin (BTC)-related activities without clearly explaining the framework and evidence behind that treatment.

The regulators’ March 19 proposals, a package that would comprehensively overhaul the existing US bank capital framework, did not mention Bitcoin, crypto or digital assets a single time. It covers credit risk, market risk, operational risk and counterparty exposures for the largest US banks, but leaves uncertainty over how existing categories apply to BTC holdings, lending, custody and derivatives.

The gap matters because Basel already imposes a harsh capital treatment on certain unbacked crypto exposures, but the US proposals do not say whether that framework will apply to Bitcoin-related activities. For banks, that leaves the economics of custody, lending, derivatives and direct holdings unresolved.

Rochard argued that regulators cannot leave that question unresolved and said a final rule that quietly imposes (or preserves) a capital treatment for Bitcoin-related activities without explicit explanation could face legal vulnerability.

He pointed to the Basel Committee’s crypto asset framework, known as SCO60, which assigns a 1,250% risk weight to unbacked crypto assets such as Bitcoin. According to Rochard, US regulators must clarify whether they intend to adopt that standard, apply elements of it selectively, or rely instead on existing domestic capital categories.

Related: Bitcoin advocate group to fight Basel’s ‘toxic’ treatment of cryptocurrency

Rochard noted that the same agencies have recently been explicit about other digital assets. On March 5, they issued a tokenized securities FAQ stating that eligible tokenized securities should generally receive the same capital treatment as their non-tokenized counterparts and that the capital framework is “technology neutral,” giving banks clear guidance on that front. By contrast, there is still no comparable explanation for how Bitcoin exposures should be treated.

Without that clarity, banks would be left to interpret how rules apply to direct Bitcoin holdings, Bitcoin-collateralized lending, custody services and derivatives exposure, increasing uncertainty across the industry.

Before the proposal’s release, some analysts had expected the re-proposal could ease capital requirements and potentially unlock liquidity for Bitcoin-related activities.

“The fiat system should stop sabotaging itself,” Rochard said in his comment on X. “Bitcoin banking rules would improve bank net interest margins and lower interest rates for borrowers.”

Cointelegraph reached out to Rochard for comment, but had not received a response by publication.

Magazine: Bitcoin may take 7 years to upgrade to post-quantum — BIP-360 co-author

Source: CoinTelegraph