Under current rules, banks must hold £125 capital for every £100 in crypto.
In recent crypto news, Citi UK’s Tiina Lee raised concerns over a 1,250% risk weight on crypto assets. It could exclude banks from the growing digital asset sector, she warned.
Speaking at TheCityUK’s London summit, Lee urged regulators to reconsider the restrictions.
She argued that overly strict rules may drive crypto activity into unregulated spaces instead of fostering safe, supervised participation within the banking system.
At TheCityUK’s annual conference in London, Tiina Lee, the UK country head for Citi, raised concerns about the current regulatory capital treatment of crypto holdings on bank balance sheets.
Lee pointed to the global banking rule that assigns a 1,250% risk weight to any crypto assets held by financial institutions.
This crypto regulation, which will come into action next year, will essentially make it too expensive to keep digital assets within the regulated banks.
To a bank with a 10 percent capital ratio, this rule would mandate the bank to maintain a capital position of 125 per every 100 units of its crypto exposure.
More on the crypto news, Lee warned that excessively strict regulations could push crypto activities outside the regulated financial system.
She noted that while the aim may be to protect the financial system, the outcome could be digital assets managed in less supervised environments.
According to Lee, it would be better for such assets to remain within a framework where appropriate oversight and supervision are applied.
She recognized that innovation within the digital assets sector has been fast. She also indicated that the regulators might have to respond to changing events.
Meanwhile, these remarks came amid international financial institutions reviewing their stance on crypto as adoption intensifies.
Regulators have been conservative, worried about volatility, fraud, and systematic risk. Nonetheless, banking executives such as Lee are advocating a middle ground.
It would enable regulated institutions to be involved in the digital asset economy. Additionally, the comments made by the Citi head refer to a bigger discussion in the financial sector.
Other stakeholders have claimed that regulation should nurture responsible involvement in the banking sector.
If regulated firms are barred from crypto exposure, they argue, control over the market may drift toward unregulated operators.
Further on the crypto news, support for broader institutional participation in crypto markets has also gained political traction.
The Trump administration in the United States supported policies favorable to the growth of digital assets.
This shift in political sentiment reinforced the view that crypto may become a more accepted asset class in traditional finance.
Moreover, as more governments consider regulatory clarity and infrastructure support for digital assets, banks are evaluating their potential roles in this ecosystem.
Without updated rules, banks may be left behind while alternative finance players take on larger roles in crypto-based services, products, and investment vehicles.
In April, the United Kingdom published a bill proposal to regulate digital asset companies to adjust them to conventional financial norms.
This proposal is aimed at exchanges, custodians, and stablecoin issuers with a focus on transparency, consumer protection, and operational robustness in order to foster trust and innovation within the market.
Furthermore, UK Chancellor Rachel Reeves presented the framework at a summit on fintech. Further legislation was announced after consultation with the industry.
This action is part of the overall plan for change to open Britain to international investment in fintech.
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