Serious consequences for Switzerland as a financial and blockchain location
The Swiss Blockchain Federation expresses profound concerns regarding the planned implementation of the Basel Standard on the regulatory treatment of crypto assets in Switzerland. This move would not be compatible with the blockchain strategy pursued by Switzerland to date and would signify a fundamental change in strategy.
Bern, 7 March 2024 – At the end of 2022, the Basel Committee on Banking Supervision (BCBS) adopted a new standard on the regulatory treatment of crypto-based assets held by banks. The committee is made up of central banks and banking supervisory authorities. It develops global standards for the regulation of banks. Switzerland is one of the founding members of the Basel Committee and is committed to adopting its standards as fully as possible. The Basel Crypto Standard is to be implemented in Switzerland by means of a partial revision of the Capital Adequacy Ordinance.
The Basel Crypto Standard, which was adopted at the end of 2022, sets out the capital requirements that banks must meet to cover market, counterparty and credit risks in connection with crypto assets. The core elements are a risk weight of 1,250% for crypto assets and an absolute upper limit for crypto risks of 1% (but in no case more than 2%) of a bank’s common equity tier 1 capital. Considering the capital buffer, the risk weight of 1,250% – the highest known under the Basel capital requirements – results in capital requirements of 130% to 200% of the book value of the crypto assets to be backed. In contrast, the Swiss Financial Market Supervisory Authority currently requires capital equivalent to the maximum risk of loss with a risk weighting of 800%. The upper limit of 4% of total capital, which applies according to the practice of the Financial Market Authority, is also significantly less strict.
The Regulatory Working Group of the Swiss Blockchain Federation conducted a thorough analysis of the Basel Crypto Standard. The group concluded that the capital adequacy requirements outlined in the standard are disproportionate when compared to the actual risks associated with banks holding crypto assets. The Swiss Blockchain Federation’s main points of criticism are:
- No technology-neutral regulation: The prohibitive capital requirements of the Basel Crypto Standard penalize the use of a specific technology and are therefore incompatible with the principle of technology-neutral regulation (same business, same risks, same rules).
- Undifferentiated: The Basel Crypto Standard lumps together crypto assets with very different risk profiles (cryptocurrencies, stablecoins, tokenized financial assets, etc.). This violates the principle of legal equality.
- Disproportionate: Capital requirements of up to 200% of the maximum risk of loss are disproportionate and not covered by the legal basis. According to these, the capital requirements must be determined “in accordance with the business activity and the risks”.
- Incompatible with Swiss blockchain strategy: Around 30 banks are currently active in the crypto business in Switzerland, including two specialized crypto banks. The Basel Committee’s proposals amount to building a firewall between the banking system and the crypto industry and are not compatible with the blockchain strategy pursued by Switzerland to date. In particular, they also contradict the position of Parliament, which unanimously approved the DLT Act in 2021. It has spoken out unequivocally in favor of Switzerland as a future-oriented blockchain and crypto location. Adopting the Basel Crypto Standard would be tantamount to a fundamental change in strategy.
The Swiss Blockchain Federation is firmly convinced that a complete adoption of the Basel Crypto Standard in the proposed form is neither politically nor legally justifiable. In view of the serious conceptual shortcomings of the Basel Crypto Standard, we propose the development of national regulation. We do not question the fact that holding crypto assets can give rise to risks for banks that are not fully covered by the existing regulation. This regulation must be based on the real risks and must respect the interests of Switzerland.
The Swiss Blockchain Federation stands ready to play a constructive role in this process and contribute its expertise to support the development of a regulatory framework that strengthens Switzerland as a financial and blockchain location while ensuring the integrity of the financial system.
You can download the position paper (available in German only) of the Swiss Blockchain Federation on the Basel Crypto Standard HERE.
