European Union lawmakers have backed legislation imposing new capital requirements for financial institutions, including strict rules aimed at covering risks related to cryptocurrencies. The latter refer to banks that hold digital assets and are expected to come into force in January 2025.
EU lawmakers approve bill implementing Basel III capital regulations for banks
Members of the Committee on Economic and Monetary Affairs of the European Parliament (economy) supported a bill Tuesday designed to enforce the latest global bank capital rules. Reuters noted in a report that lawmakers have also incorporated specific requirements that address risks stemming from crypto assets.
The general rules are part of the Basel III reforms, a set of internationally agreed measures developed by the Basel Committee on Banking Supervision after the 2007-2009 financial crisis. Its main objective is to strengthen the supervision and risk management of banks.
Other jurisdictions, including the US and the UK, are also moving in a similar direction. However, ECON is introducing additional regulations with the European bill, forcing banking institutions to hold enough capital to fully cover crypto asset holdings.
“Banks will be required to hold one euro of their own capital for every euro they hold in cryptocurrency,” explained Markus Ferber, a center-right member of the committee from Germany. He elaborated:
Such prohibitive capital requirements will help prevent instability in the world of cryptocurrencies from spilling over into the financial system.
ECON takes a tougher line than EU member states
The changes, which are in line with recommendations from global banking regulators, represent an interim measure pending additional legislation. An earlier version of the bill has already been approved by member states and the European Parliament will have to negotiate the final draft with them.
EU states have taken a more accommodative approach to when foreign banks serving European clients should open a branch or transform it into a more capitalized subsidiary. ECON members took a tougher line, the report notes.
A fine tuning is to be expected. For example, the Association for Financial Markets in Europe (AFME) noted that the draft lacks a definition of crypto assets. The industry organization believes that it could eventually be applied to tokenized securities.
The AFME also says the EU must avoid a possible adverse impact of restricting access to international markets and cross-border services as it seeks to consolidate its autonomy in capital markets from competition from the UK, post-Brexit.
Last summer, EU institutions and member states reached an agreement on Europe’s new Markets for Crypto Assets (MiCA) legislation. The package is expected to go into effect in 2023, but companies will have another 12 to 18 months to comply.
Do you think the European Parliament will adopt stricter capital requirements for banks holding crypto assets? Share your expectations in the comments section below.
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