- Swiss Financial Maarket Authority FINMA plans to soon make it official for banks trading cryptos to weight the digital assets at eight times their market value
- The guidelines will instruct financial institutions handling bitcoin and altcoins to assign a flat risk weight of 800 percent to cover market and credit risks
- The agency also plans to place a cap of 4 percent of total capital for financial institutions
A confidential letter sent to EXPERTsuisse by Switzerland’s Financial Market Authority (FINMA) has revealed that the financial regulator wants banks trading bitcoin and other digital assets to assign a flat risk weight of 800 percent for cryptoassets in order to cover market and credit risks adequately, according to a Swissinfo.ch reported on November 5.
FINMA cautious about crypto
While the Swiss Financial Market Supervisory Authority (FINMA) has yet to make an official announcement regarding how to merge cryptocurrency into Basel III capital requirements or liquidity ratios, the regulator’s stance towards crypto has however been revealed in a confidential letter sent to EXPERTsuisse, which is an organization that represents Swiss trustees and accountants.
Per local news agency Swissinfo.ch which claims to have seen the confidential letter, FINMA strongly believes that distributed ledger technology (DLT) based virtual currencies should be risk weighted at eight times their correct market value when financial institutions calculate loss-absorbing capital buffers.
At a time when the price of bitcoin has crashed to just above $6,000, losing more than 50 percent of the entire gains made from its surge to nearly $20,000 in late 2017, FINMA says it has received many inquiries from banks and securities dealers holding positions in cryptoassets, and is advising them to “assign a flat risk weight of 800 percent to cryptos until the Basel Committee on Banking Supervision drafts new rules.
Not Highly Liquid Assets
Furthermore, FINMA has made it clear that cryptocurrencies should not be considered as highly liquid assets when financial institutions are determining liquidity ratios.
The agency has also reportedly said that the guidelines are only meant for digital currencies held on a bank’s books and not customer deposits stored separately in its balance sheet.
Importantly, FINMA has also reportedly put a cap of 4 percent on cryptocurrency trading activities when institutions are summing up their long and short positions.
Better Than Outrightly Rejecting Crypto
Despite the strict guidelines, market participants in the Swiss cryptospace have expressed satisfaction over the new guidelines.
“SEBA acknowledges the guidelines which may be justified for certain models on how cryptoassets are handled and stored,” said CEO of SEBA Bank, Guido Buhler.
Earlier in September 2018, reports emerged that SEBA Crypto AG had raised $103 million to enable it to establish a cryptocurrency bank that would give retail investors access to cryptos and fiat currencies in a single account.