• The European Union has voted to impose strict capital requirements on banks that hold cryptocurrencies.
• The regulation mirrors that suggested by the Bank for International Settlements’ Basel Committee, which also suggested a 2% limit on tier 1 capital.
• The measures must be approved by the European Parliament and presented to the Council of the European Union in order for them to go into effect.
EU Imposes Capital Requirements On Banks Holding Cryptocurrencies
The European Union (EU) has taken steps towards regulating cryptocurrency markets with the passing of a law that would require banks holding crypto assets to maintain euro-denominated own capital reserves as well as risk tier weighting limits for unbacked digital currencies.
The passage of this law was spurred by recent market turmoil around cryptocurrency exchanges such as FTX, Celsius, and others. This prompted EU lawmakers to take action in order to “prevent instability in the crypto world from spilling over into the financial system”.
Details Of Regulation
As proposed by the Bank for International Settlements’ Basel Committee, banks will be required to hold one euro of own capital reserves for every euro they hold in crypto assets. Additionally, there is a 2% limit on tier 1 capital that can be held denominated in unbacked cryptocurrencies. However, it has been noted that there is no definition of crypto assets under this legislation; thus further draft issues may arise when presenting it before national finance ministers at the Council of the EU.
The Economic and Monetary Affairs Committee within EU Parliament voted in favor of these measures; however, it still needs approval from Parliament as a whole before being presented for review at the Council meeting.
This law is expected to be part of a larger set of regulations aimed at bringing Europe into compliance with international standards surrounding cybersecurity and digital asset management when dealing with cryptocurrency markets.