LONDON, July 10 (Reuters) – Banks that transact gold in London may seek exemption from the stricter capital rules expected in January 2022, a UK regulator said on Friday, removing what some have called a threat for the functioning of the market.
London is the world’s largest physical hub for precious metals. Its clearing system, operated by a handful of large banks with access to the metal in vaults – JPMorgan, HSBC, ICBC Standard and UBS – settles gold transactions worth around $ 30 billion a day.
The upcoming rules, known as the Net Stable Funding Ratio (NSFR), are part of Basel III regulations designed to make banks more stable and prevent a repeat of the 2008-09 financial crisis.
The rules treat physically traded gold like any other commodity, forcing banks to hold more liquidity to match their exposure to gold as a buffer against unfavorable price movements.
The London Bullion Market Association (LBMA), an industry body, has lobbied against them, claiming that they are unnecessary and could force some banks ?? including clearing banks – to stop the trade.
Following a consultation, the Bank of England’s Prudential Regulatory Authority (PRA) said on Friday it had “decided to change its approach to precious metal holdings linked to deposit-taking and clearing activities.” .
He said he had introduced an “interdependent authorization for precious metals” which would reduce the size of the required capital buffer.
“This is one of the key points of what we have been asking for all these years,” said Sakhila Mirza, chief lawyer of the LBMA. “The compensation will be exempt.”
The PRA said it would not classify gold as a high-quality liquid asset, which would have freed other transactions such as precious metal loans and leases from the high capital requirement.
The LBMA claims that gold is liquid enough that it does not need an additional liquidity cushion for clearing and settlement and short-term trading.
JPMorgan and HSBC declined to comment. ICBC Standard did not immediately respond late Friday.
A spokesperson for UBS said: “UBS welcomes the PRA decision, which supports the stability of bullion cleaning and avoids disrupting the London market.” (Reporting by Peter Hobson Editing by Dan Grebler and David Holmes)