Hong Kong Targets Insurers With 100 Percent Capital Charge on Crypto
- Hong Kong proposed a 100% capital risk charge on
insurers’ crypto holdings.
- The plan treats cryptocurrencies as the highest-risk
asset class.
- Insurers may cut digital asset exposure if the rules take effect.
HONG KONG (EtherX) Hong Kong regulators proposed a 100% capital risk charge on
insurers holding digital assets, citing crypto news volatility and the need to
protect policyholders from potential losses.
Regulatory
Context
The proposal would require insurers
to hold capital equal to the full value of any cryptocurrency exposure,
effectively classifying digital assets as the highest-risk investment under the
territory’s insurance solvency framework.
Officials said the measure is
intended to address sharp price swings, liquidity risks, and the limited
operating history of most cryptocurrencies.
Impact
on Insurers
Under current rules, insurers apply
different capital charges depending on asset risk, with cash and government
bonds carrying the lowest requirements. A full risk charge would make crypto
holdings significantly more capital-intensive.
An insurance executive familiar with
the consultation said the proposal would “limit incentives for insurers to keep
crypto on their balance sheets,” declining to be named due to the ongoing
review.
Policy
Rationale
Regulators said early action is
necessary even though insurers’ direct exposure to cryptocurrencies remains
small, arguing that prudential standards should be in place before holdings
increase.
The proposal follows international
supervisory guidance that warns insurers against assuming crypto assets behave
like traditional investments during market stress.
Industry
Response
Industry groups said they are
reviewing the consultation paper and assessing how the proposed charge would
apply to different forms of digital assets, including tokenized products.
One market analyst said the move
would align insurers more closely with banks, which already face strict capital
treatment for unbacked crypto exposures.
Consultation and Adoption
The consultation will remain open
for public comment over the coming weeks, after which regulators may revise the
framework. If adopted, insurers would need to incorporate the higher capital
charge into solvency calculations, potentially reducing future crypto
investment activity.
