Swiss Regulators Tell Banks Engaging In Crypto To Weight Asset Risk At 800%

Wilfred Michael 

Wilfred Michael

News reporter

05 November 2018,
22:05
Swiss Regulators Tell Banks Engaging In Crypto To Weight Asset Risk At 800%

Swiss-based banks who are interested in trading cryptocurrencies have been provided with new guidelines by the Swiss Financial Market Supervisory Authority (FINMA).

According to local news media, Swissinfo, FINMA released the new holding guidance in a letter that it made available to a Swiss body of trustees and accountants called EXPERTsuisse.

FINMA revealed that it has received a number of enquiries from banks and securities dealers holding positions in crypto assets and hope the letter will provide satisfying answers to everyone concerned especially those who want to know more about “capital adequacy requirements, risk distribution regulations and regulations for the calculation of short-term liquidity ratios”.

The watchdog stated in the publication how banks holding crypto assets are to calculate loss-absorbing capital buffers, or hedge against the volatility of cryptocurrencies. FINMA stipulated that banks set a "flat risk weight of 800% to cover market and credit risks" when dealing with crypto assets on a banking or trading book.

This means that if the current value of BTC is $6000, banks will have to evaluate each coin at the value of $48,000 in order to properly calculate the risk-weighted worth of such assets. This will add additional pressure on capital.

Additionally, the institutions have been told to report to FINMA any crypto trading activity that exceeds 4% of their total capital.

 

Not The Final Regulatory Guideline

It was pointed out in the publication that the current guideline made available to EXPERTsuisse does not fall under the Basel III international banking regulations.
Instead, it represents FINMA’s stance on crypto asset management and will be used until the  Basel Committee on Banking Supervision makes global recommendations on how Swiss firms are to engage with cryptocurrencies. The next meeting of the Basel Committee is scheduled for 26-27 November 2018 in Abu Dhabi.