The European Union (EU) has recently achieved a political agreement on updates to the Capital Requirements Regulation and Directive. This decision includes the introduction of new regulations for crypto assets, in response to concerns over “unbacked cryptocurrencies” entering the traditional financial system. The European Parliament‘s Economic and Monetary Affairs committee announced the update following a meeting that included representatives from the European Parliament, national governments, and the European Commission.
Swedish Finance Minister Elisabeth Svantesson, who chaired the discussion, explained that the updated regulations recalibrate the risk weighting for banking assets like corporate loans. The purpose is to “boost the strength and resilience of banks operating in the Union.” Additionally, the Council confirmed that a “transitional prudential regime for crypto assets” is included in the agreement, although further details are not yet available.
There were initial indications that the EU would adopt a hardline stance, with free-floating cryptocurrencies like Bitcoin and Ether potentially receiving a 1,250% risk weight. Under this scenario, banks would be required to issue a euro of capital for each euro of these cryptocurrencies that they hold. This approach would likely deter banks from investing in the cryptocurrency market.
During the talks, however, the European Commission proposed a milder position towards regulated stablecoins, which appears to have been embraced by EU governments. The agreement will require approval from EU Council member states and lawmakers, a process that may take several months. The final text is set to be released concurrently with the introduction of new banking regulations by the Basel Committee on Banking Supervision, planned for January 1, 2025.
A spokesperson for the European Parliament informed Decrypt that “transitional provisions will be in place until January 2025 when international Basel III rules should kick in.” The primary objective of these changes is to address potential risks to institutions stemming from their exposure to crypto-assets that are not adequately covered under the current prudential framework.
The committee also recommended that a bank’s exposure to certain crypto-assets should not exceed 2% and should generally remain below 1%. By adopting more stringent regulations for cryptocurrencies while maintaining a softer stance towards regulated stablecoins, the EU is walking a fine line between promoting innovation in the crypto space and maintaining the stability and safety of its financial system. The coming months will reveal whether these measures strike the right balance.
Source: Decrypt
