Is European Regulation On Crypto Helping Or Stopping The Industry Evolve

The failure of Silicon Valley Bank and other US-based lenders, whose impact extended to Europe, as well as the compelled acquisition of Credit Suisse by UBS, has brought bank capital and liquidity into sharp focus.

On Tuesday, the bloc’s MEPs agreed to establish a temporary prudential framework for crypto assets and to amend regulations for improving banks’ management of ESG risks. This arrangement will remain in effect until the European Commission (EC) enforces the Basel III banking reforms, with the goal of “ensuring that banks disclose their exposure to crypto-assets.”

Regarding risk assets like unbacked cryptocurrencies, MEPs advised, “The Commission should present an appropriate legislative proposal to apply these future Basel standards and outline the prudential treatment of such exposures during the transitional period.”

MEP Jonás Fernandez stated that the interim provisions will encompass “establishing capital requirements for crypto assets until the Commission proposes a specific legislative initiative.” He also mentioned that the updated banking legislation should help reduce the likelihood of future banking crises. The European Parliament Committee on Economic and Monetary Affairs announced the news via Twitter, noting that “details of the deal will follow.” The agreement, which also brings changes to banks’ risk assessment for corporate and residential loans, must be approved by EU Council members and lawmakers to become law.

In January, the European Parliament’s economic affairs committee endorsed a draft law to enforce Basel III capital regulations starting in early 2025. MEPs voted at that time to implement stringent restrictions on banks looking to hold cryptocurrencies. Markus Ferber, the economic spokesperson for the Parliament’s largest political group, said in a January statement, “Banks will need to maintain a euro of their own capital for every euro held in crypto, and such prohibitive capital requirements will aid in preventing instability in the crypto realm from affecting the financial system.”

The Basel Committee on Banking Supervision is finalizing global standards for regulating bank exposure to crypto assets. Current details indicate a strict approach to prudential treatment for bank crypto-asset exposure. The Basel III accord emerged as a response to the 2007/2008 Global Financial Crisis. Drafted by the EU and G20 partners, it includes multiple measures aimed at improving banks’ prudential regulatory standards, supervision, and risk management.

What is the Basel Committee on Banking Supervision (BCBS)

The Basel Committee on Banking Supervision (BCBS) is a committee of banking supervisory authorities that was established in 1974 by the central bank governors of the G10 countries. The BCBS provides a forum for cooperation on banking supervisory matters and promotes the development and implementation of prudent regulatory standards and best practices to ensure the safety and soundness of the international banking system.

It is responsible for setting global standards for banking regulation, which are then adopted by national regulators around the world. The BCBS has 45 members from 28 jurisdictions, including major economies such as the United States, Japan, Germany, France, and China. Its headquarters are located in Basel, Switzerland.

EU and Crypto

In other cryptocurrency news the EU Markets in Cryptoassets Regulation (“MiCA”) appeared in the EU’s official journal on 9 June 2023 and will come into effect on 29 June 2023, which is the 20th day after its publication. Consequently, provisions concerning stablecoins (asset-referenced tokens and e-money tokens) will be enforced 12 months later, starting from 30 June 2024. The remaining provisions will be applicable from 30 December 2024.

MiCA introduces a unified pan-EU framework for cryptoassets. This novel regulatory structure aims to safeguard investors and maintain financial stability while promoting innovation and enhancing the appeal of the cryptoasset industry. MiCA will directly apply to all EU member states, replacing current domestic laws and standardizing national legislation related to cryptoassets and associated activities.

Finally, the Cryptopay debit card provider for the European Union has had its Electronic Money Institution (EMI) license revoked, as revealed in a June 22 email sent to customers. The company advises EU cardholders to promptly spend or move funds from their cards.

Cryptopay had been utilizing UAB PayrNet, a licensed EMI in Lithuania, to offer debit card services to its EU clientele. However, Lithuania’s central bank revoked PayrNet’s license, resulting in the potential for users’ funds to be temporarily frozen on their cards.