Summary of CySEC's Circular C462
Memo #36-2021
CySEC Circular No: C462
Date: 03/08/2021
Subject: Prudential treatment of crypto assets and enhancement of risk management procedures associated with crypto assets
Purpose: To inform the CIFs that CySEC is amending a paragraph of the Circular C417 ‘Prudential treatment of crypto assets and enhancement of risk management procedures associated with crypto assets’.
In Summary:
CySEC has issued the Circular C462 on 03/08/2021 to inform the Cyprus Investment Firms (CIFs) that the paragraph A2 of Circular C417 ‘Prudential treatment of crypto assets and enhancement of risk management procedures associated with crypto assets’ will be amended as follows:
A. Calculation of own funds and capital adequacy ratio (Pillar I)
2. Direct investment in crypto assets on a speculative basis (trading book exposure)
When a CIF invests directly in crypto assets on a speculative basis, it should treat these as investments in a derivative product subject to both of the following risks:
i. Counterparty Credit Risk ("CCR") calculated in accordance with Section 1 ‘Trading counterparty default’ of the IFR and the CIF should apply a 32% potential future exposure percentage (PFCE) per Art. 29(7) of IFR.
The above should be presented in Tab “IF6 – K-FACTOR Details”, Sub table “IF 06.11 – Trading counterparty default – TDC additional details” Row 0010 and Tab “CCR”, in the corresponding EBA templates regarding IFD/IFR reporting.
ii. Market Commodity Risk is calculated according to Articles 355 to 361 of the CRR.
The above should be presented in Tab ‘MKR SA COM’, Row 050 in the corresponding EBA template.
In general, this Circular C462 refers to the below paragraphs:
A. Calculation of own funds and capital adequacy ratio (Pillar I)
1. Direct investment in crypto assets on a non-speculative basis (banking book exposure)
2. Direct investment in crypto assets on a speculative basis (trading book exposure)
3. Direct investment of CIFs’ clients in crypto assets and/or in financial instruments relating to crypto assets with the CIF acting as the counterparty to these
transactions
B. Internal Capital Adequacy Assessment Process (‘ICAAP’) (Pillar II)
C. Pillar III disclosures
D. Enhancement of risks management procedures associated with crypto assets
This Circular C462 also reminds about the regulatory provisions of Section 34 and Section 51(1)(a) of the Law 97/2021.
CySEC notes that, considering the nature of crypto assets, CIFs should also examine taking mitigating measures against operational, cybersecurity and reputational risks.
Read the CySEC Circular C462
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