Banks’ Crypto Activities Come under Swiss Restrictions

The measures, imposed by Swiss financial regulator FINMA, include 800% risk weighting for bank crypto trading.

The Swiss Financial Market Supervisory Authority (FINMA) has introduced restrictions on banks’ crypto initiatives, including eight times risk weighting, the Swissinfo portal reported on Monday, citing a letter sent by the regulator to EXPERTsuisse, an association representing local trustees and accountants. The measures place virtual assets in the category of high-risk investments along with hedge funds.

The guidelines target virtual coins on the banks’ own books and will be in place until the international Basel Committee on Banking Supervision creates global recommendations on those issues.

“FINMA has recently received an increasing number of enquiries from banks and securities dealers holding positions in cryptoassets and are subject to capital adequacy requirements, risk distribution regulations and regulations for the calculation of short-term liquidity ratios,” says the letter, which is dated October 15.

Under the new provisions, banks must reserve significantly more capital to cover crypto losses compared to other asset classes. The regulator obliges financial institutions to “[assign] 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,” which means that virtual coin risk measurement must include eight times the market value of those assets.

FINMA places a 4% cap on crypto trading activities, which applies to total capital with both long and short positions taken into account. In addition, digital currencies cannot be considered highly liquid assets when determining liquid ratios, the regulator wrote.

According to Guido Bühler, CEO of Swiss crypto bank projectSeba, the new measures will have a limited impact as the guidelines affect mainly other types of financial institutions. The Bitcoin Association Switzerland (BAS) welcomed the FINMA rules as a positive step.

“It’s encouraging to see banks no longer turning down the increasing number of client requests for crypto services but asking for guidance and providing their input along the way. This is the Swiss financial centre’s first step towards moving into the next decade where assets are no longer held in a single, central custody but instead are held on the blockchain,” BAS told Swissinfo.