OSFI sets capital rules for crypto

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The regulator said it expects companies to take a “cautious approach” to using crypto and “remain vigilant of the risks involved.”

The Interim Approach outlines OSFI’s treatment of credit risk, market risk and leverage involving crypto.

The guidelines distinguish between so-called Group 1 and Group 2 crypto-assets, with Group 1 comprising digital representations of traditional assets that also meet various other criteria regarding their legal status, governance and custody arrangements (amongst others). ).

Group 2 crypto is defined as all other digital assets that do not meet the definition of group 1 assets.

In terms of credit risk, OSFI’s approach treats tier 1 assets as traditional assets, while exposures to tier 2 assets in the banking books must be deducted from banks’ Tier 1 capital, and assets Group 2 have no collateral value under OSFI’s approach.

Short positions in Group 2 crypto are not permitted, as such holdings present unlimited risk, he noted.

OSFI said its interim approach to crypto builds on a position it originally set out in July 2021 and sets limits on crypto transactions by banks and insurers.

“This interim approach ensures that [financial firms] adopt sound risk management policies and practices regarding their crypto-asset portfolios, thereby helping to preserve the resilience and stability of the Canadian financial system,” OSFI noted.

The regulator said it intends to update these guidelines as government policy evolves and global regulatory approaches to crypto crystallize.

“Like other financial institutions around the world, some Canadians [financial institutions] have exposures to cryptoassets, and we have provided this interim approach to help ensure that risks in this area are managed prudently and overseen under the principle of ‘same business, same risk, same regulation,’” said the Superintendent of OSFI, Peter Routledge, in a Liberation.

In addition, the regulator has sought feedback on several consultation questions that will be used to update the guidance. The deadline for providing comments is October 14.

The Basel Committee on Banking Supervision is also currently in the midst of an ongoing consultation on the prudential treatment of crypto exposures. The deadline for providing comments to this consultation is September 30.

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