EU Reaches Agreement on Crypto Asset Regulations in Banking

The European Union (EU) has reached a political agreement on changes to the Capital Requirements Regulation and Directive, including new regulations for crypto assets. This move comes in response to lawmakers' calls for stringent rules to prevent “unbacked cryptocurrencies” from infiltrating the traditional financial system.

The announcement of this agreement was made public via a tweet from the European Parliament's Economic and Monetary Affairs committee. The tweet followed a meeting that brought together representatives from the European Parliament, national governments, and the European Commission, the body that initially proposed these rules back in 2021.

Swedish Finance Minister Elisabeth Svantesson, who chaired the talks on behalf of EU member states, stated that the new rules, which also recalibrate the risk weighting for banking assets such as corporate loans, aim to "boost the strength and resilience of banks operating in the Union."

The Council's statement further confirmed that the deal includes a "transitional prudential regime for crypto assets," without providing further details.

Preliminary details suggested a hardline stance, with a maximum possible 1,250% risk weight assigned to free-floating cryptocurrencies. This would have meant that banks would have to issue a euro of capital for each euro of Bitcoin (BTC) or Ether (ETH) they hold, effectively discouraging them from investing in the market.

However, during the talks, the European Commission proposed a softer stance for regulated stablecoins. This proposal appears to have found favor among EU governments.

Anticipating rule changes in 2025

The agreement now requires approval from member states in the EU’s Council and lawmakers, which could take several months.

Furthermore, the final text will be issued to coincide with the new banking rules that will be introduced by the Basel Committee on Banking Supervision, the primary global standard setter for the prudential regulation of banks. This rulebook is planned to be implemented by January 1, 2025.

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“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 told Decrypt. “The goal is to address potential risks for institutions caused by their exposures to crypto-assets that are not sufficiently covered by the existing prudential framework.”

The committee suggested that a bank's exposure to certain crypto assets should not exceed 2% and should generally be lower than 1%.