Cryptocurrency

FINMA Recommends Banks Deploying Crypto Risk Coverage at 800% in Switzerland

FINMA
Foto: © Philipp Zinniker

With the proper risk management practice in place which helps ward off certain complexities that the cryptocurrency face at present. The Swiss watchdog – The Swiss Financial Market Supervisory Authority (FINMA) has requested banks and financial institutions to deploy proper risk management process that helps estimate risk coverage for cryptocurrencies for almost 800 percent at current market value as per the valid report published on 5th November.

With this, Swissinfo, a local news portal circulated a copy of a confidential letter issued by FINMA to the Swiss Association pertaining to Audit, Tax and Fiduciary (EXPERT Suisse) which elaborates the watchdog agency’s stance towards crypto friendly regulations. The FINMA in the letter requests financial institutions to allocate a flat risk that weight of almost 800 percent that “covers market and credit risks, regardless of whether the positions are held in the banking or trading book.”

While elaborating more about the perspective, the crypto major – Bitcoin (BTC) which is currently trading at $6,402 clearly states computation of the risk weighing assets while assuming the a value of over $51,000 per Bitcoin. While carefully considering the current scenario, banks would impart a large amount of capital that helps cover potential losses across cryptocurrency positions.

Based on the report, Swissinfo concludes a risk weight of almost 800 percent which is at the upper end of the range for financial assets. Having said that FINMA analyzes the entire investment scenario is volatile. Let us not forget that that FINMA valued crypto asset trading which falls into the similar category of Hedge fund activity through the sharp drop in crypto prices followed by substantial price stability sought this year.

Amid this, the regulator in the country has already set a cap on crypto trading activities which comes to four percent out of total capital post long and short positions. FINMA also recommends financial institutions to report especially when they reach beyond the limit. With this, FINMA speculates more about the perspective saying that cryptocurrencies are not considered to be as liquid financial assets compared to other financial assets traded.

As per Swissinfo, the proper standards required to handle the cryptocurrencies activities will apply until the FINMA’s next meeting of the Basel Committee on Banking Supervision starts from 26th – 27th November.

At the beginning of October 2018, the FINMA honored an award the country’s first crypto asset management license to a crypto investment fund. With the new license in place, Crypto Fund will be in a position to legally offer a massive collection of investment products that help track Bitcoin and other crypto assets.

About the author

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Shalin Soni

Shalin joined CryptoNewsZ as Associate Finance (Cryptocurrency Research & Analysis) in 2018 and has 10 years of collective experience to work on financial modeling and financial planning & analysis activities (fp&a) domains. He has worked with various organizations in India and added values by leveraging his skills and expertise. He has strong domain expertise in research & analysis, valuation, and fp&a. He has worked with various organizations in India and added values by leveraging his skills and expertise. He has strong domain expertise in research & analysis, valuation, and fp&a.
You can also mail him at [email protected] to discuss anything related to his reports.

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