MADRID, Spain— Fast-paced developments in decentralized finance (DeFi) and crypto assets necessitate a proactive and forward-looking regulatory and supervisory approach, Pablo Hernández de Cos, chair of the Basel Committee on Banking Supervision and governor of the Bank of Spain, is warning.
In a speech delivered at the 36th Annual General Meeting of the International Swaps and Derivatives Association in Madrid, Hernández de Cos suggested that while crypto assets and DeFi still represent less than 1% of total global financial assets and banks’ exposures are relatively limited, an appropriate response is to bring these areas within the relevant regulatory perimeter, Pymnts.com reported.
“Despite our better understanding of crypto assets and DeFi, the jury is still out when it comes to ascertaining how best to harness their oft-cited promises and benefits, while mitigating their risks and safeguarding financial stability,” Hernández de Cos was quoted as saying.
The committee’s chair also raised some doubts about the future of these digital assets and whether they will deliver what they have promised, Pymnts.com further reported.
‘Fail on Both Counts’
Despite some assets being considered “stable” and “currencies,” they often fail on both counts, Hernández de Cos argued. These remarks came just a few days after some of the most popular stablecoins like TerraUSD and Tether dropped their value and it also caused a crash in some cryptocurrencies like Luna (which is associated to TerraUSD), Pymnts.com noted.
The Basel Committee that Hernández de Cos chairs has a mandate to strengthen the regulation and supervision of banks worldwide. While the banks’ exposures to these assets are still limited, he is calling for a forward-looking approach to regulation and supervision to ensure that prudential regulation is in place to mitigate additional risks, Pymnts.com added.
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