The European Union (EU) has recently made significant strides in the regulation of crypto assets in the banking sector. With the growing popularity and adoption of cryptocurrencies and other digital assets, it has become imperative for regulatory bodies to establish a framework that ensures the stability, security, and transparency of these assets within the financial system. The latter, for example, has been demonstrated with new regulations such as MiCA.
The rapid expansion of the crypto market has raised concerns over money laundering, fraud, and market manipulation. Additionally, the volatile nature of cryptocurrencies poses potential risks to both investors and the stability of the financial system. To address these challenges, the EU has recognized the importance of establishing a robust regulatory framework that strikes a balance between fostering innovation and protecting consumers
Consequently, “The EU has reached a political agreement on regulations to safeguard the financial system from “unbacked cryptocurrencies” and strengthen banks”. The agreement at stake represents having new changes to the Capital Requirements Regulation and Directive, including new regulations for crypto assets.
The European Parliament’s Economic and Monetary Affairs committee made the announcement public last week via Twitter. It’s important to note that back in 2021, the European Commission was the body that initially proposed these rules.
Elisabeth Svantesson, Swedish Finance Minister stated that the new rules aim to “boost the strength and resilience of banks operating in the Union.”
The “proposed changes included a proposed risk weight of up to 1,250% for cryptocurrencies. Meaning banks would have to own over one euro for every equal value of crypto assets.”
Although in the agreement there were representatives from the European Parliament, the European Commission, and national governments, the agreement is not final yet and Member states as well as the EU parliament will still have to vote on the proposals.
Considering that nothing is final yet and that the proposal included a risk weight of up to 1,250%, it’s important to note that “the Basel Committee on Banking Supervision (BCBS), argued that a bank’s exposure to certain crypto assets must not exceed 2% and should generally be lower than 1%”.
As a result, taking into consideration that the BCBS is the primary global standard setter for the prudential regulation of banks, it is likely that the text will be issued to coincide with the new banking rules introduced by the institution. As “The final agreed text is not available yet, transitional provisions will be in place until January 2025, when international Basel III rules should kick in”, a spokesperson to the European Parliament said.
By establishing a common regulatory framework, the EU aims to strike a balance between fostering innovation and mitigating the risks associated with crypto assets. As the crypto market continues to evolve, these regulations will play a pivotal role in shaping the future of digital finance in the EU and beyond.
The new rules, planned to be implemented in 2025 will serve to “safeguard the financial system from unbacked cryptocurrencies and strengthen banks” which along with regulations as MiCA will allow the EU to become a dominant player in the crypto market.