FINMA’s letter prescribes financial service providers to designate a flat risk level of 800% percent “to cover market and credit risks, regardless of whether the positions are held in the banking or trading book.”
Bitcoin( BTC) is as of now exchanging at $6,402, which implies that a bank must assume a value of over $ 51,000 per Bitcoin when calculating the risk weight of assets. Under the latest advice, banks would have to maintain large amount to cover possible cryptocurrency losses.
As Swissinfo reports, a risk weight of 800% is at the upper end of the range for financial assets, proposing that FINMA regards the investment as exceptionally risky. In spite of the sharp drop in crypto prices and the subsequent price steadiness, FINMA rates trading in crypto resources this year in a comparable way to hedge fund activities.
The regulatory authority too sets a constrain on crypto trading to four percent of total capital after all long and short positions have been settled. FINMA demands that institutions report when they reach this constrain.
FINMA moreover stipulates that cryptocurrencies cannot be considered exceedingly fluid financial resources when deciding liquidity ratios i.e. capital that banks can utilize to offset short-term misfortunes.
Per Swissinfo, these benchmarks for dealing with cryptocurrencies, which FINMA has clearly communicated to banks, will be applicable until the next gathering of the Basel Committee on Banking Supervision from November 26–27.
In early October, FINMA granted a crypto investment fund the country’s first asset management license. With the new Crypto Fund license, a wide range of collective investment products tracking Bitcoin and other crypto assets, including domestic funds, can legally be offered.