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(Adds UBS comment)
By Peter Hobson
LONDON, July 10 (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, 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
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.
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."
(Reporting by Peter Hobson
Editing by Dan Grebler and David Holmes)
