In a move to address the growing influence of cryptocurrencies in the traditional financial sector, EU lawmakers have reached a consensus on the implementation of capital requirements for banks that hold crypto assets.
Quick facts:
- EU lawmakers struck a deal on capital requirements for banks holding cryptocurrencies, introducing a transitional prudential regime until Basel III reforms are implemented.
- The agreement aims to enhance financial stability by ensuring banks disclose their exposure to crypto assets.
- Amendments are also made to improve banks’ management of ESG risks, with further details of the deal yet to be disclosed.
The decision comes as part of a transitional prudential regime aimed at ensuring the stability of the financial system while more comprehensive reforms are being developed. Under the agreement, banks will be obligated to disclose their exposure to crypto assets and adhere to specific capital requirements.
The European Commission is expected to propose additional legislation aligning with the future Basel III standards, further specifying the treatment of crypto exposures during this transitional period.
This development marks a step toward regulating the role of unbacked cryptocurrencies and bolstering the resilience of the banking sector.
EU Takes Steps to Regulate Bank Exposure to Cryptocurrencies
Additionally, during a session held on Tuesday, Members of the European Parliament (MEPs) sealed the agreement, which not only addresses capital requirements for crypto assets but also includes amendments to strengthen banks’ management of environmental, social, and governance (ESG) risks.
The transitional regime will remain in effect until the comprehensive Basel III banking reforms are enacted, with the primary objective of fortifying the stability and transparency of the financial system.
MEP Jonás Fernandez emphasized the significance of the transitional arrangements, which involve establishing capital requirements for crypto assets up until the European Commission submits specific legislative proposals.
This approach aims to mitigate potential risks and establish robust risk management practices within the banking sector, reducing the likelihood of future banking crises.
While the precise details of the agreement are yet to be disclosed, the announcement was made by the European Parliament Committee on Economic and Monetary Affairs, indicating that further information will be forthcoming.
This action taken by EU lawmakers aligns with global efforts to establish consistent standards for regulating banks’ exposure to crypto assets. The Basel Committee on Banking Supervision, an international regulatory body, is finalizing these standards.
The proposed guidelines indicate a rigorous approach to the prudential treatment of bank crypto-asset exposure.
Basel III Reforms on the Horizon
The Basel III agreement, initially drafted in response to the Global Financial Crisis of 2007–2008, focuses on enhancing prudential regulatory standards, supervision, and risk management in the banking sector. The EU and its G20 partners worked collaboratively to develop it.
The implementation of capital requirements for banks holding crypto assets aligns with the broader objectives of Basel III and reinforces the importance of robust risk management practices.
To become law, the agreement must now undergo the voting process by member states in the EU’s Council and lawmakers. If approved, it will strengthen the regulatory framework for banks operating within the European Union, promoting stability and transparency in the financial system.
