EU Lawmakers Back More Stringent Rules for Banks Holding Crypto

Lawmakers in the European Union (EU) voted on and approved on Tuesday a draft law that would see banks in the bloc holding cryptocurrencies follow more stringent measures.

EU Lawmakers Back Draft Law

EU lawmakers on Tuesday voted to back a draft law to implement the final stage of post-financial global bank capital rules. According to reports by Reuters, the draft law added “prohibitive” requirements to cover risks from crypto assets. The so-called “prohibitive” measures would require banks to hold a punitive amount of capital to cover more than 100% of any loss from cryptocurrency companies and is in line with Basel III capital rules and is set to take effect from January 2025.

Previous reports indicated that one of the amendments up for a vote would require banks to set a risk-weighting of 1,250% to all capital with crypto exposure, meaning that banks could cover 100% of any potential losses.

The approval of this draft law is just an interim measure pending further and more comprehensive EU legislation in line with recommendations from global banking regulators. Markus Ferber, a member of the European Parliament, said that banks would have to hold a euro of their capital for every euro they hold in crypto assets. The regulator argues that since cryptocurrency is such a “high-risk investment,” it has become necessary to implement such a measure. Ferber added:

Such prohibitive capital requirements will help prevent instability in the crypto world from spilling over into the financial system.

The United States, Britain, and other countries are reportedly taking similar steps against the backdrop of integrating such a “high-risk investment” into the financial sector.

The Association for Financial Market in Europe (AFME), an industry body, however, noted that the draft law, as it stands, contains no definition of “crypto assets” and may well end up being applied to tokenized securities also. Reuters reports that EU states have already approved their versions of the draft law, negotiations between member states are set to take place, and a few amendments are expected.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.