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Cryptocurrency Assigned Risk Weight of 800% in Switzerland

Redwan Eid | Nov. 6, 2018
Cryptocurrency Assigned Risk Weight of 800% in Switzerland

November 6, 2018 | AtoZ Markets

FINMA- The Swiss Financial Market Supervisory Authority, has advised the banks which involves cryptocurrency in their dealings, to apply a “risk weighting” calculation by eight times their market value, when calculating loss-absorbing capital buffers.

According to swissinfo.ch, the FINMA sent a confidential letter, imposing a 4% cap on crypto positions, as percentage of the total capital the banks hold, stressing the necessity to report when they reach the limit.

As reported earlier, the Swiss regulator, which kept a distance from making a decision on regulating cryptos in Switzerland so far, still wants financial institutions to treat cryptos as a high-risk asset class, according to the letter dated October 15 to EXPERTsuisse.

Cryptoassets 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”, read the letter in a part of it.

Cryptos should not be regarded as high-liquid assets

The new regulatory provisions dictate that banks must value value bitcoin eight times the amount it is being traded at currently ($6,400), meaning it should be valued at over $50,000 when calculating the risk-weighted worth of its assets.

Consequently, banks must reserve a larger amount of capital to bridge trading losses for cryptos, in comparison to other asset classes.

As per the new regulations as well, the FINMA demands that cryptocurrencies cannot be classified as high-liquid assets when calculating a bank’s liquidity ratio.

It is worth mentioning in this context that Switzerland has been noted as one of Europe’s friendliest jurisdictions for crypto finance innovation.

Disclaimer: The views and opinions expressed in this article are solely those of the author and do not reflect the official policy or position of AtoZ Markets.com, nor should they be attributed to AtoZMarkets.