EU banks face strict crypto rules in new published legal draft

EU banks face strict crypto rules in new published legal draft

While more precise guidelines are being drawn up, new restrictive rules for the European Union banks have been confirmed in a published bill.

EU banks would be required to apply the highest possible risk weighting on cryptocurrency assets, according to draft rule which was published by the European Parliament on Friday 10 February.

How conventional financial institutions interact with digital assets may be determined by laws being developed. As part of the agreement, financial institutions will be required to report their direct and indirect exposure to cryptocurrencies while the European Commission drafts more granular regulations for the industry.

“The potentially growing involvement of [financial] financial institutions in activities related to crypto-assets should be fully reflected in the Union’s prudential framework, in order to adequately mitigate the risks of these instruments for the institutions’ financial stability,” reads an explanatory text provided. by Parliament’s Economic and Monetary Affairs Committee.

The draft adds:

“This is even more urgent in light of recent adverse developments in crypto-asset markets.”

Proposed risk weight

Banks should hold capital equal to the amount of crypto they have, unlike other assets like mortgages, so the suggested risk weight of 1,250% doesn’t really provide them with a reason to store crypto.

Global capital standards set by the Basel Committee on Banking Supervision are called for in the proposed bill, and the European Commission is tasked with proposing further laws to implement them by June. The Committee suggested setting a strict limit on the number of unbacked cryptocurrencies that banks can store, such as Bitcoin (BTC). However, this recommendation is not included in the draft EU regulations.

EU member states meet as the Council and European Parliament both need to approve the measures for them to become law.

Proposed risk weight

Furthermore, at the beginning of February, the European Investment Bank (EIB) announcement the issuance of its very first digital title denominated in pounds bindinvolving both public and private block chains.

According to the EIB, the digital bond worth £50 million ($61.60 million) was delivered in collaboration with BNP Paribas, HSBCand RBC Capital Markets.

Despite a difficult economic environment and growing geopolitical tensions, the European banking sector has demonstrated sustainability and flexibility. The industry’s ability to grow total assets, despite adverse market conditions, speaks to its resilience.

Indeed, as of 23 January 2022, figures compiled by Finbold showed that total assets held by banks in EU member states amounted to €29.01 trillion, an increase of €11.54 % YoY (or €2.29 trillion) compared to the 26.720 billion euros reported in the third quarter of 2021.

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