Swiss Regulator Urges Banks To Put More Teeth Into Crypto Trading

Nov 07, 2018 at 1:01

The Swiss Financial Market Supervisory Authority (FINMA) is urging banks to toughen their stance on cryptocurrency trading as it suggests financial institutions to adopt risk weighting 8x the value of the digital currency due to its extreme volatile nature.

The Swiss Financial Market Supervisory Authority (FINMA) has told banks to adopt higher credit risk to cryptocurrencies, recommending an estimated risk coverage of 800 percent of current market value, due to its volatility.

This was reported by local news portal Swissinfo which cited a copy of a confidential letter by FINMA addressed to the Swiss Association for Audit, Tax and Fiduciary (EXPERTsuisse).

Credit risk is the probable loss resulting from the possibility of borrowers defaulting on payments or failing to meet obligations.

Credit risk is the probable loss resulting from the possibility of borrowers defaulting on payments or failing to meet obligations.

In the report, FINMA explained that the suggestion to set aside a risk capital of 800 percent higher than the digital token’s value is to “cover market and credit risks, regardless of whether the positions are held in the banking or trading book.”

This risk estimate shows how FINMA deems virtual currencies as very volatile.

Aside from wanting banks to set aside a risk capital, FINMA is also eyeing capping crypto trading at four percent of total capital of banks. Once they reach the cap, banks should immediately report to the regulator.

The regulator also stipulates that digital assets cannot be classified as highly liquid financial assets especially when banks need quick cash to cover short-term losses.

The recommendation on risk credit and crypto trading cap, however, are only temporary.
At least until the next Basel Committee meeting on Banking Supervision from Nov. 26–27.

The Basel Committee on Banking Supervision (BCBS) is the world’s standard setter for bank regulations. It has 45 members including central banks and bank supervisors from 28 jurisdictions.