According to local sources, the government of Switzerland has issued a statement to banks encouraging them to increase their risk rating for the emerging cryptocurrency asset class. Home to world-renowned banking institutions, Switzerland’s Financial Market Supervisory Authority (FINMA) advised banks to weight the risk of cryptocurrency assets at eight times their current market value. Furthermore, the memo advised banks to cap their crypto investment at 4% of total capital. With the high levels of volatility in crypto, the Swiss regulatory body has placed it in a similar high-risk asset class to that of hedge fund activity.
Although the government has no official stance on cryptocurrency assets, a local news outlet claims to have read an internal memo sent to banks privately. According to Swissinfo.ch, “[This letter] reveals the regulator’s current thoughts on the issue. “FINMA has recently received an increasing number of enquiries from banks and securities dealers holding positions in crypto assets and are subject to capital adequacy requirements, risk distribution regulations and regulations for the calculation of short-term liquidity ratios,” the letter, dated October 15, states.” This private memo provides an interesting peek at where regulations may end up being created, despite no official government position being issued yet.
Regulators Worldwide Cracking Down on Crypto
The private memo issued in Switzerland can be seen as a wider trend of regulatory agencies issuing warnings and clamping down on the emerging crypto sector. The United States Securities and Exchange Commission has issued similar warnings about cryptocurrencies in the past. Further, the lack of regulations have led to a lot of speculation about the young industry. Even the Swiss government seems to prefer to see global regulations come from the Basel Committee on Banking Supervision before creating their own regulations. Even so, there have been some attempts to rein in the most fringe aspects of the cryptocurrency sector through regulatory oversight.
With that, the Swiss country’s regulatory body has issued guidelines for Initial Coin Offerings (ICOs) which surged in popularity at the end of 2017. While recognizing the potential of blockchain, FINMA CEO stated “The application of blockchain technology has innovative potential within and far beyond financial markets. However, blockchain-based projects conducted analogously to regulated activities cannot simply circumvent the tired and tested regulatory framework.” Through these ICO guidelines, FINMA established three types of tokens “payment tokens,” “utility tokens,” and “asset tokens.” Each of which have their own regulatory significance, such as asset tokens being classified as securities. Further, the guidelines made clear the need for anti-money laundering laws to be followed when handling cryptocurrency. Swiss Government Advisory