Prudential Regulation Policy Responses to Financial Technological Innovations: The Future for Banks and Crypto-Finance?

This chapter discusses the rise of crypto-assets in their potential interfaces with the banking business and the challenges posed by prudential regulatory policy. Prudential regulatory policy has after the global financial crisis become more conservative but also dependent on recognised characteristics of mainstream financial assets in order to map financial risks. Existing prudential regulation does not optimally accommodate crypto-instruments and the Basel Committee has adopted risk-averse approaches to banks’ direct exposures. The chapter suggests there are new business opportunities for banks that can be explored, and the engagement between crypto and conventional finance cannot be prevented. In particular, the chapter discusses how crypto-collateralised secured lending can be supported by legal and regulatory clarifications and reform.