The Swiss Financial Markets Supervisory Authority (FINMA) has reportedly marked cryptocurrency-related assets as extremely volatile and has recommended financial institutions an 800% risk coverage for their crypto assets.
In a confidential letter addressed to the Swiss Association for Audit, Tax and Fiduciary (EXPERTSUISSE), FINMA outlined this stance for cryptocurrencies and other tokens. The position clearly tells the banks to have capital buffers for crypto assets in place “to cover market and credit risks, regardless of whether the positions are held in the banking or trading book”.
This appears to indicate that FINMA doesn’t trust digital assets and wants a hugely significant buffer around the digital assets to help protect financial institutions. To put that into perspective, for every Bitcoin at USD 6,500, the banks will have to set aside USD 52,000 as risk buffers. If agreed, the new move will force banks to cover potential losses on cryptocurrency positions based on this risk assessment by FINMA.
The 800% buffer suggests a persisting impression of Bitcoin being extremely volatile despite recording recent weeks of volatility lower than the stock market itself.
FINMA did not stop there, requiring an additional 4% cap on cryptocurrency trading of the total capital owned by any financial institution. That means any organization can only trade up to 4% of its total fiat money. FINMA has also suggested institutions should be required to report when they have reached that limit.
The report goes on to say that cryptocurrencies are not highly liquid assets, so much so that the banks cannot go short on them to offset any short-term losses. This means that the banks’ hands will be tied up in coming up with any innovative use of cryptocurrencies to make profits or offset losses.
These standards are expected to come into effect after the next meeting of the Basel Committee on Banking Supervision which will take place from 26-27 November.
While Switzerland has generally been progressive in the blockchain industry and has enacted pro-blockchain laws across the country, this latest move by the markets regulator will question its standing as one of the most crypto-friendly nations in the world.
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