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

By Peter Hobson

LONDON, July 9 (Reuters) - A British regulator said on
Friday that banks clearing gold trades in London could apply for
an exemption from tighter capital rules due in January 2022,
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, 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 regulation designed to make banks
more stable and prevent a repeat of the financial crisis of
2008-09.

They 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.

The London clearing banks are JPMorgan, HSBC
, ICBC Standard and UBS.
JPMorgan declined to comment, and the others did not immediately
respond late on Friday.

(Reporting by Peter Hobson; Editing by Dan Grebler)