The European Union (EU) legislators moved a draft law seeking to implement the final leg of the post-financial global bank capital rules. The EU MPs also included “prohibitive” requirements or measures to assuage the risks associated with crypto assets.
According to reports by Reuters, the so-called “prohibitive” measures, which are in line with Basil III capital rules, have been slated to be effective from January 2025. Under the measures, banks would be mandated to hold a punitive amount of capital to cover more than 100% of any loss from cryptocurrency companies.
Meanwhile, the adoption of this draft regulation is merely a short-term measure until more extensive EU legislation is passed. The measures being proposed are expected to be in accordance with suggestions from international banking regulators.
Markus Ferber, a member of the European Parliament, stated that banks would be required to hold one euro of capital for every euro held in crypto assets. The regulator added that such rules are required to help prevent the spillover of crypto market turmoil into the banking sector.
Additionally, the report highlighted that EU member states have already approved their own version of the draft law. The member states have scheduled negotiations, and some changes are anticipated.
The EU Sets Precedents for Regulation of Crypto
The EU has been working hard to regulate crypto assets held by banks. In December 2020, the European Banking Authority (EBA) issued guidelines for the treatment of crypto assets held by banks.
The rules seek to ensure that banks have strong risk management frameworks in place to reduce risks such as money laundering and terrorism financing threats. On the other hand, Martin Bruncko, the Executive Vice President of Binance established that the MiCA regulatory framework passed by the EU last year could be beneficial for crypto exchanges and small businesses.
The US, the UK, and other countries are taking similar steps, with the European Union setting a precedent by requiring banks to hold enough capital to fully cover their holdings of Bitcoin and cryptocurrencies. In this regard, the New York Attorney General proposed a bill, to protect the retirement funds of individuals from risks associated with digital assets.
The Bank for International Settlements (BIS), also known as the “Central Bank for Central Banks,” also proposed a new rule that will allow banks to store up to 2% of their reserves in bitcoin.
