Russia's Proposed Crypto Cap Protects Bank Customer Assets

The Bank of Russia has proposed a new regulation that sets a 1% cap on crypto-related capital for banks in the country. The draft proposal, which is part of Russia's broader framework for regulating the crypto market, aims to limit the risks associated with cryptocurrencies and foreign digital instruments.

The proposed regulation, N31 and N32, would apply to individual credit institutions and banking groups on a consolidated basis. Under this system, banks' own holdings and crypto-linked instruments would be counted against their capital, but customer assets would be treated differently depending on who bears the loss if assets are seized or transactions are restricted.

If the bank or digital depository in its group is liable for the loss, client custody positions would be included in the 1% ratios. However, if the bank does not bear the liability, these positions would be excluded from the calculation and instead receive a 50% risk weight in prudential treatment.

The proposed regulation also includes rules for hedging, which would only be allowed under certain conditions tied to asset, settlement, maturity, freezing, and liquidity risk. Direct holdings and other higher-risk exposures would be measured more conservatively and could not be fully neutralized by an offsetting position.