Switzerland’s FINMA recommends 800 pct risk weighting for bank crypto trading
Tue, 06 Nov 2018, 07:28 am UTC
When calculating loss-absorbing capital buffers, banks should risk weight crypto assets at eight times their market value, the regulator said in a recently issued letter to EXPERTsuisse, viewed by the news portal.
“FINMA has recently received an increasing number of enquiries from banks and securities dealers holding positions in cryptoassets and are subject to capital adequacy requirements, risk distribution regulations and regulations for the calculation of short-term liquidity ratios,” the letter, dated October 15, reads.
According to FINMA, cryptocurrencies cannot be considered as highly liquid assets when determining liquidity ratios. It is recommending financial players that crypto assets should be “assigned a flat risk weight of 800% to cover market and credit risks, regardless of whether the positions are held in the banking or trading book”.
The regulator caps crypto trading activities at 4 percent of a bank’s total capital, when adding together long and short positions, and urges institutions to report it to authorities when they reach the limit.
According to the report, the regulator has not taken any official stance on how to merge crypto assets into Basel III capital requirements or liquidity ratios. In a fact sheet issued on August 30, it said:
“Although Swiss financial market law contains no specific provisions governing virtual currencies, trading in these units may still require authorization from FINMA.
“In particular, providing custody wallet services (i.e. custody and payment services for virtual currencies) and operating trading platforms on which virtual currencies can be bought and sold fall under the Anti-Money Laundering Act. Before offering such services, potential providers must either join a self-regulatory organisation or register directly with FINMA as a financial intermediary.”
Earlier in February, FINMA had issued guidelines on initial coin offerings (ICOs) and said that “Depending on the manner in which ICOs are designed, they may not in all cases be subject to regulatory requirements. Circumstances must be considered on a case-by-case basis.”
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