NASSAU, BAHAMAS — The Central Bank has released its Digital Asset Guidelines for 2023, outlining the regulatory expectations for supervised financial institutions (SFC) regarding exposure to digital assets activities.
The guidelines also aim to identify and establish best practices for effective risk management, with the regulator assuring that there were no conflicts with the DARE Act or overlaps with the regulatory ambit of the Securities Commission.
“The guidelines provide Supervised Financial Institutions (“SFIs”) with an overview of the Central Bank’s expectations for exposure to digital assets activities and identification of accepted best practices for effective risk management. SFIs should take a risk-based approach, factoring in their board-approved risk appetite and their resources. Where there may exist additional risks posed by digital assets, SFIs should ensure that the risks are promptly identified, measured, and mitigated,” the Central Bank noted.
“The application of the 1,250 percent risk weight set out in the Guidelines will ensure that SFIs are required to hold minimum risk-based capital at least equal in value to their Group 2 digital asset exposures.”
The regulator indicated that digital assets are divided into three categories for prudential purposes: Group 1a, Group 1b, and Group 2 digital assets. Group 1a digital assets include tokenized traditional assets that meet all the classification conditions. Group 1b digital assets include stablecoins that meet all the classification conditions. Group 2 digital assets include all other digital assets (i.e., tokenized traditional assets, stablecoins, and unbacked digital assets) that fail to meet the classification conditions.
According to the regulator, Group 2 digital assets are considered highly volatile, thus exposing investors and digital trading platforms to material market risk. “The application of the 1,250 percent risk weight set out in the Guidelines will ensure that SFIs are required to hold minimum risk-based capital at least equal in value to their Group 2 digital asset exposures.”
Concerning responses and concerns from industry stakeholders, the regulator noted that it is not its intention to impede on the efficiency as it relates to compliance between the Securities Commission of The Bahamas and the Central Bank, with the latter having reviewed the draft Digital Assets Guidelines and making necessary amendments to its guidelines where seeming conflicts arose.