Foto: © Philipp Zinniker

Swiss Regulator Recommends 800% Risk Coverage For Bank Crypto Trading

News, Regulation | November 6, 2018 By:

The Swiss Financial Market Supervisory Authority (FINMA) has advised banks that cryptocurrencies should have a risk weighting ratio of 800 percent to cover market and credit risks.

Local news media outlet Swissinfo reported that FINMA issued a confidential letter to EXPERTsuisse, an association representing Swiss trustees and accountants, which explains the regulator’s current stance on cryptocurrency trading.

In the letter, FINMA said that it has recently received an increasing number of inquiries from banks and securities dealers holding positions in cryptoassets, but the formal regulatory framework on the issue were yet to appear. Until the Basel Committee on Banking Supervision makes global recommendations, FINMA wants financial players to treat cryptoassets as a high risk asset class. It said that cryptoassets should be “assigned a flat risk weight of 800 percent to cover market and credit risks, regardless of whether the positions are held in the banking or trading book.”

Currently, bitcoin is trading at $6,434, which means a bank must assume a value of over $50,000 for every bitcoin on its books when calculating the risk-weighted worth of its assets. As a result, banks must put aside a larger chunk of capital to cover potential losses of cryptocurrency positions.

According to experts, the guidelines indicate that FINMA considers cryptocurrency as volatile, and puts it on the level of hedge funds. FINMA said other countries take an even tougher line with risk weighting cryptocurrencies.

The regulator also imposed a cap on crypto positions as a percentage of total capital held by banks, requiring them to report when they reach the limit. It also said that cryptocurrencies cannot be considered as highly liquid assets when determining banks’ liquidity ratios.

The Basel Committee is scheduled to meet on November 26-27, and discuss its position on cryptocurrencies in the mainstream financial world. FINMA is not expected to make a public statement on the issue until global regulations have been set.