Bank of Russia proposes 1% crypto capital cap for banks

The Bank of Russia has proposed a 1% crypto capital cap, limiting covered crypto and foreign digital instrument risk to a bank's own funds while excluding some client custody positions. The proposal, introduced on Sept. 18, establishes two ratios: N31 for individual credit institutions and N32 for banking groups on a consolidated basis. These ratios compare covered exposure with the institution's capital. The draft regulation encompasses direct and indirect investments, derivatives tied to crypto prices, and instruments like loans and bonds that depend on crypto or foreign digital instruments. Banks will have limited recognition for hedges, with long and short positions netted only within a qualifying lower-risk category. Customer asset treatment depends on liability for losses; custody positions enter N31 or N32 when the bank is liable. Non-liable client custody positions receive a 50% risk weight, while liable positions incur a 1,250% risk weight. This distinction allows custody without treating every customer asset as the bank's exposure, while imposing strict capital constraints on direct holdings. The ratios are part of Russia's ongoing crypto-market regulations, with official publication expected in Q4 2026 and requirements effective 10 days later. Banks will report instrument turnover and N31/N32 values starting January 2027.