EU governments embrace strict crypto bank rules

EU Governments Friendly to Tough Crypto Bank Capital Restrictions

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  • European Union governments show support for new banking standards which could categorize unbacked cryptocurrencies as high-risk assets.
  • The legislation could assign maximum risk weight to cryptocurrencies like Bitcoin and Ether, potentially isolating crypto from the traditional banking system.
  • Earlier this year, the European Parliament proposed a risk weight of 1,250% for crypto assets, but a recent document suggests some leniency for regulated stablecoins.

In a significant move, EU governments appear to be rallying behind a new banking standard.

This development could potentially classify cryptocurrencies that lack traditional financial backing as high-risk assets, a development that promises to revolutionize the way financial institutions handle digital currencies.

The Riskiest Assets in the Banking Sector

Under the proposed legislation, cryptocurrencies such as Bitcoin and Ether could be assigned the highest risk weight. This amendment is part of a comprehensive set of banking laws that could receive approval as early as next week.

The European Parliament has already signaled its favor of stringent measures to insulate the traditional banking system from the uncertainties of the crypto market.

Now, the EU Council, which represents member states and is crucial for the approval of these plans, also appears to be on board.

Mats Anderson, a Swedish diplomat engaged in discussions on the new rules, endorsed the Commission’s recommendations at a recent event in Spain.

Anderson, the Counselor for Financial Services and Markets at the EU representation of Sweden, is currently presiding over the Council’s Presidency discussions. He stated that his endorsement stemmed from discussions with representatives of the Union’s other 26 members.

Following a mild reprimand for referring to an unpublished European Commission document, Anderson admitted that he had made a “Freudian slip.” This faux pas seemingly confirmed the existence of the hitherto undisclosed document.

Implications for the Crypto Market

Earlier this year, the European Parliament proposed assigning the highest possible risk weight of 1,250 percent to crypto assets like Bitcoin. This proposal necessitates that lenders maintain a capital equivalent to each Euro of issued crypto.

Traditional finance lobbyists have expressed concerns that this conservative approach could impede deal-making.

However, a confidential document seen by CoinDesk suggested the Commission was contemplating a more lenient approach. It proposed assigning lower risk weights to regulated stablecoins under the upcoming Market in Crypto Assets (MiCA) law, slated to take effect in 2024.

This step is viewed as an interim measure pending the finalization of standards by the international Basel Committee on Banking Supervision.

The banking package has been a complex issue, raising contentious points around the risk assessment of corporate loans and the treatment of foreign lenders entering the EU. However, after over 18 months of deliberations, officials seem confident about reaching an agreement soon.

Martin Merlin, a director at the EU executive’s financial services arm, expressed optimism that an agreement would be reached by the end of June.

Anderson also hinted at the possibility of reaching a political agreement at a meeting scheduled for June 15, thus paving the way for the EU to embrace stricter rules for crypto banks.

Disclaimer: The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decision.

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Jai Hamid

Jai Hamid is a passionate writer with a keen interest in blockchain technology, the global economy, and literature. She dedicates most of her time to exploring the transformative potential of crypto and the dynamics of worldwide economic trends.

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