Citi UK CEO: Regulators Should Not Force Crypto Into Shadow Banking Sector

Citi UK CEO Tiina Lee reportedly said Thursday (June 26) that regulators should not place restrictions on banks’ cryptocurrency holdings that are so “prohibitive” that those assets are driven into the shadow banking sector.

Speaking at TheCityUK ’s annual conference in London, Lee addressed global rules that will be implemented next year that place a 1,250% risk weight charge on crypto assets banks hold on their balance sheet, Bloomberg reported Thursday.

“That’s prohibitive in terms of regulated firm,” Lee said, according to the report. “So, as we think about how fast this market is moving, is that something that actually, as an industry we want in the non-regulated sphere, or is it better that it’s supervised appropriately, with the right oversight?”

Lee’s comments came as regulators and banks around the world wrestle with finding a balance between mitigating the risks around cryptocurrencies and embracing the opportunities they present.

It was reported Wednesday (June 25) that the European Commission is set to announce rules governing the stablecoin market despite warnings from the European Central Bank that the regulations could threaten the region’s banks when markets grow more volatile.

The commission’s formal guidance will propose that stablecoins issued outside the European Union are treated as interchangeable with same-branded versions allowed only on EU markets.

On Tuesday (June 24), the Bank for International Settlements (BIS) said stablecoins “fall short” as a form of sound money and “without regulation pose a risk to financial stability and monetary sovereignty.”

Because stablecoins do not deliver acceptance for payment at par, timely discharge of obligations or safeguards against financial crime, “their future role is unclear,” the BIS said.

In the U.S., the Federal Deposit Insurance Corp. and the Federal Reserve said in April that they withdrew earlier warnings that cast a chill over banks’ involvement with cryptocurrencies .

The banking regulators said that by making these changes, they aimed to signal a new regulatory openness to banks engaging in digital asset activities, provided they do so prudently and within the bounds of existing law.

It was reported Wednesday that on Capitol Hill, momentum is accelerating behind legislative efforts to bring stablecoins under federal oversight and to create a framework for the development of legislation for digital assets .