By Huw Jones

LONDON (Reuters) – Proposed capital rules for banks holding cryptoassets on their books could block lenders from competing in the fast-growing sector, a group of industry lobbying groups said, though they urged watchdogs to act quickly to finalise the regulations.

Basel Committee on Banking Supervision is a group of regulators representing the major financial centers around the globe. It proposed in June that banks should adopt a gradual approach to meeting capital requirements.

Banks would need to have capital that is at least equal to their assets to bitcoin in order to absorb full write-offs.

In a Monday letter sent to the Basel Committee, industry organizations stated that there was a need to have regulatory certainty “nearly medium term” due to cryptoassets’ rapid evolution and high client demand.

They argued that regulators and the public would both benefit from banks’ involvement in cryptoassets, as lenders have long-standing experience in managing, monitoring, and identifying risks. They added that the Basel proposals would make it prohibitively expensive for banks to participate in cryptoasset markets.

The 64-page letter stated that “contrary to these benefits the prudential framework envisaged in the consultation would create material obstacles to regulated bank participation cryptoasset markets.”

The letter stated that increased banking participation would make blockchain technology available to more people and have “tangible advantages for the real economic system”.

These nine bodies are the Institute of International Finance and ISDA, and the Institute of International Finance.

A single risk-weighting (1,250%) that does not recognize any hedging is inadequate to deal with the wide range of activity in cryptoassets’ most volatile group cannot adequately address these risks.

This is particularly worrying given the explosive growth in cryptoasset market activity that involves participants outside of the regulatory framework.

There have been divergent views among banks about whether they should be involved with what regulators call purely speculative asset like bitcoin. Cryptoasset activity is centered on operators who are relatively unregulated, or not regulated. Regulators have had difficulty understanding this.