Lawmakers in the European Union have backed legislation imposing new capital requirements for financial institutions, including strict rules to cover crypto-related risks. The latter affect banks holding digital assets and are expected to come into force in January 2025.
EU lawmakers approve bill to implement Basel III capital requirements for banks
Members of the European Parliament’s Committee on Economic and Monetary Affairs (ECON) on Tuesday backed a bill aimed at enforcing the latest global capital rules for banks. Reuters noted in a report that lawmakers have also included specific requirements related to risks posed by 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 in the wake of the 2007-2009 financial crisis. Its main purpose is to strengthen the supervision and risk management of banks.
Other jurisdictions, including the US and UK, are also moving in a similar direction. However, with the European draft law, ECON introduces additional regulations that oblige banking institutions to hold sufficient capital to fully cover crypto asset holdings.
“Banks must hold one euro of equity for every euro they hold in crypto,” explained Markus Ferber, a centre-right member of the committee from Germany. He stated:
Such prohibitive capital requirements will help prevent instability in the crypto world from spilling over into the financial system.
ECON takes a harder line than EU member states
The changes, which are in line with recommendations from global banking regulators, represent an interim measure pending further legislation. An earlier version of the draft law has already been approved by member states and the European Parliament will have to negotiate the final draft with them.
The EU countries are more accommodating when foreign banks that provide services for European customers should open a branch or convert it into a capital-stronger subsidiary. ECON members took a harder line, the report said.
Fine tuning is to be expected. For example, the Association for Financial Markets in Europe (AFME) pointed out that the draft lacks a definition of crypto assets. The industry body believes it could eventually be applied to tokenized securities.
AFME also says the EU should avoid potential adverse effects from tightening access to international markets and cross-border services while trying to consolidate its autonomy in capital markets in the face of post-Brexit competition from the UK.
Last summer, EU institutions and member states agreed on Europe’s new legislation on crypto asset markets (MiCA). The package is expected to come into effect in 2023, but companies have another 12 to 18 months to comply.
Do you think the European Parliament will pass the stricter capital requirements for banks with crypto assets? Share your expectations in the comments section below.
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