The Swiss monetary Market supervisory Authority FINMA has suggested banks and alternative monetary institutions to estimate risk coverage for cryptocurrencies at 800 % of current market price.
Major native news portal Swissinfo reportedly saw a replica of a confidential letter from FINMA to the swiss Association for Audit, Tax and Fiduciary (EXPERTsuisse) that explains the watchdog agency’s stance on capital buffers for crypto assets.
In the letter, FINMA recommends monetary service providers to allocate a flat risk weight of 800 % for "to cover market and credit risks, irrespective of whether or not the positions are held within the banking or trading book.”
Bitcoin (BTC) is presently trading at $ 6,402, that means that when calculating the risk weight of assets, a bank should assume a price of over $51,000 per Bitcoin. Beneath the new deliberation, banks would put aside large amounts of capital so as to hide potential losses on cryptocurrency positions.
As Swissinfo reports, a risk weight of 800 % is at the higher end of the range for monetary assets, that suggests that FINMA views the investment as terribly volatile. Crypto plus trading is valued by FINMA in an exceedingly similar fashion to hedge fund activity, despite the sharp drop in crypto costs and subsequent value stability this year.
The regulator additionally sets a cap on crypto trading at four % of total capital when compensatory all long and short positions. FINMA insists that institutions report once they reach that limit.
FINMA conjointly stipulates that cryptocurrencies can't be considered extremely liquid monetary assets once deciding liquidity ratios i.e. capital that banks will use to offset short-term losses.
According to Swissinfo, these standards for handling cryptocurrencies, that FINMA has apparently communicated to banks, can apply till the following meeting of the city Committee on Banking management from November. 26–27.
At the start of October, FINMA awarded the country’s 1st crypto asset management license to a crypto investment fund. With the new license Crypto Fund will be able to legally offer a good spectrum of collective investment products that track Bitcoin and different crypto assets, as well as domestic funds.
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