Swiss Banks Asked to Raise Risk Buffers for Crypto Assets

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Financial regulators in Switzerland have advised financial institutions interested cryptocurrencies to escalate the risk rating of crypto assets, local news outlet reports.

According to the report, Switzerland’s Financial Market Supervisory Authority (FINMA) instructed the banks through a confidential letter to accounting organizations. The letter, which claims to have read, detailed the agencies position on how they should evaluate crypto assets when calculating loss-absorbing capital buffers.

FINMA reportedly asked the financial institutions to assign a flat risk weight of 800 percent to cover the market and credit risks associated with crypto assets. With this weight, bitcoin which is currently trading at $6,443 will now be valued at about $50,000 to provide an adequate buffer for any losses.

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High weights are typically assigned to risky investments which indicate that FINMA considers cryptocurrencies a very risky asset class. Regulators have complained about risks associated with cryptos which include the threat of cyberattack, market manipulations, and price volatility.

Furthermore, the financial regulators advised institutions to cap their crypto trading investments at 4 percent of its total capital. Banks were instructed to report to FINMA anytime crypto investments exceeded 4 percent of its capital.

As it stands, FINMA has not publicly released an official announcement regarding the risk buffers for crypto assets neither has proposed changes to the Basel III international banking regulations. The letter, at best, portrays the agency’s perception of cryptos.

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Regarding official cryptocurrency regulations, FINMA published guidelines for Initial Coin Offerings in February to clarify the status of ICOs launching in the country. The regulator identified three categories of ICO tokens namely “payment tokens,” “utility tokens” and “asset tokens,” noting that the asset tokens would be treated as securities.

As Smartereum reported, Switzerland made moves to ease its cryptocurrency-related regulations after it lost significant ground in the earnings from ICOs and crypto startups. The authorities encouraged banks to open accounts for crypto firms. They, however, still required anti-money laundering compliance to conduct fiat transactions.

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