Wall Street Trade Groups Call for Rethink of Basel Crypto Standards

Major financial industry associations are demanding that global banking regulators pause sweeping crypto rules they warn will effectively bar banks from the $2.8 trillion digital asset market.

Eight prominent trade groups, including the Global Financial Markets Association and the Institute of International Finance, sent a letter on Tuesday to the Basel Committee on Banking Supervision demanding it "temporarily pause" implementation of crypto standards set to take effect in January 2026.

The coalition warns the rules' "punitive capital treatments" will make crypto activities "uneconomical" for banks, forcing the sector to operate outside regulated financial institutions.

The Basel standards, while non-binding, are typically adopted by member countries and would determine whether major international banks can meaningfully compete in crypto markets.

Musheer Ahmed, founder of Hong Kong advisory firm Finstep Asia, told Decrypt that inconsistent global implementation poses challenges, warning "we risk fragmentation of services and two-tier adoption."

The associations noted that policy approaches are "fundamentally different in 2025" compared to 2022 when policy frameworks were first laid out, warning that inconsistent implementation could "jeopardize the goal of establishing a minimum standard."

Ahmed said the Basel rules reflect outdated risk perceptions, noting "the capital rules were brought in when a majority of players were not from TradFi/banking," following major crashes like Luna/Terra and FTX. 

To that point, the groups warn that the rules risk a “bifurcated market structure” that pushes crypto outside the banking system, noting how bank involvement “promotes safety and soundness, client protections, and financial stability.”

Under the Basel framework, crypto faces higher capital requirements than traditional assets, with Bitcoin and Ethereum carrying 100% risk weights while many crypto assets face a punitive 1,250% penalty, far exceeding requirements for corporate bonds or equities. 

The associations also criticize exposure limits that cap banks' “Group 2” crypto holdings at just 1% of Tier 1 capital.

The trade groups cite data showing BTC and ETH trading volumes of $10.6 billion and $6.4 billion, respectively, which dwarf the $192 million average for S&P 500 companies, yet face harsher regulatory treatment.

While the committee issued technical amendments in July 2024, refining certain aspects, the groups say these changes don't address fundamental structural problems with the original 2022 framework.

With increased institutional participation, "the risk management would be more in line with traditional finance/banking,” Ahmed added.

Given these changes, he believes "it is prudent for the Basel committee to review and revise the capital rules accordingly."

"Throughout the history of financial markets, innovation has always charted the way forward to a more robust and efficient financial sector," the letter reads, saying banks shouldn't be "unfairly restricted" from adopting distributed ledger technology.