Crypto companies Coinbase and Circle are raising objections to specific aspects of a proposal put forth by the Basel Committee on Banking Supervision, which aims to establish more rigorous criteria for the preferential regulatory treatment of banks' stablecoin exposure.

In December, the committee released a consultation outlining its proposal, which suggests that banks must conduct thorough due diligence to ensure they possess "an adequate understanding of the stabilisation mechanisms" of stablecoins to which they are exposed.

The proposed criteria aim to determine whether stablecoins qualify for a "Group 1b category," entailing preferential regulatory treatment. According to the consultation document, certain benchmarks must be met, including low volatility and sufficient liquidity. Feedback on the document was expected by March 28.

Coinbase, a prominent cryptocurrency exchange, expressed disappointment with the committee's approach in a comment letter submitted on March 28. The company argued that many of the requirements outlined do not accurately reflect the risk posed by these assets to a bank, but instead, align with unrelated policy objectives not typically considered in capital requirements.

Moreover, Coinbase contended that the committee's decisions indicate a desire to severely restrict banks' ability to hold and utilize stablecoins.

Meanwhile, Circle, a company involved in issuing stablecoins, criticized the committee's treatment of permissionless blockchains. The committee's consultation report stated that permissionless blockchains carry "unique risks" and thus indicated that, for the time being, they would not be allowed in Group 1.

Circle, in its comment letter dated March 27, argued for a different approach, emphasizing the potential benefits of leveraging blockchain technology, cryptography, and mobile-enabled wallets for banks' digital transformation and cybersecurity efforts. The company highlighted its successful operational experience and partnerships with global banking institutions as evidence of a collaborative model that could benefit both banks and regulators.

The Basel Committee on Banking Supervision serves as a global standard setter, with member countries including the United States, Canada, Japan, and others.