Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Britain carves out exemption for gold clearing banks from Basel III rule

Published 09/07/2021, 18:41
Updated 10/07/2021, 12:40
© Reuters. FILE PHOTO: Gold bullion is displayed at GoldSilver Central's office in Singapore June 19, 2017. REUTERS/Edgar Su/File Photo

© Reuters. FILE PHOTO: Gold bullion is displayed at GoldSilver Central's office in Singapore June 19, 2017. REUTERS/Edgar Su/File Photo

By Peter Hobson

LONDON (Reuters) -Banks clearing gold trades in London can apply for an exemption from tighter capital rules due in January 2022, a British regulator said on Friday, removing what some said was a threat to the functioning of the market.

London is the world's biggest physical precious metals trading hub. Its clearing system, operated by a handful of large banks with access to metal in vaults - JPMorgan (NYSE:JPM), 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 financial crisis of 2008-09.

The rules treat physically traded gold like any other commodity, requiring banks to hold more cash to match their gold exposure as a buffer against adverse price moves.

The London Bullion Market Association (LBMA), an industry body, has lobbied against them, saying they are unnecessary and could force some banks – including clearing banks - to stop trading.

Following a consultation, the Bank of England's Prudential (LON:PRU) Regulatory Authority (PRA) said on Friday it had "decided to amend its approach to precious metal holdings related to deposit-taking and clearing activities."

It said it had introduced an "interdependent precious metals permission" which would reduce the size of the required capital buffer.

"This is one of the key points that what we've been asking for all these years," said Sakhila Mirza, the LBMA's chief counsel. "Clearing will be exempt."

The PRA said it would not classify gold as a high-quality liquid asset, which would have freed other trades such as precious metals loans and leases from the high capital requirement.

The LBMA says gold is liquid enough not to need an additional liquidity buffer for clearing and settlement and short-term transactions.

© Reuters. FILE PHOTO: Gold bullion is displayed at GoldSilver Central's office in Singapore June 19, 2017. REUTERS/Edgar Su/File Photo

JPMorgan and HSBC declined to comment. ICBC Standard did not immediately respond late on Friday.

A spokesperson for UBS said: "UBS welcomes the PRA's decision, which supports stability in bullion cleaning and avoids disruption to the London market."

Latest comments

banks are insolvent and gold is missing....
1445
less gld is worthless ! but u will not buy physical anywhere
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.