EU Wants Unbacked Crypto Out of TradFi Institutions

The EU is charting new territory with its advanced bank capital policy, which now includes regulations for digital currencies. The policy development emerged from a meeting involving the European Parliament, Member-State governments and the European Commission:

On Tuesday 27/06 @EP_Economics negotiators struck a deal
on changes to Capital Requirements Regulation & Directive #CRR & #CRD @jonasfernandez w/ #EU2023SE details will follow pic.twitter.com/7eRCgk7Eg5

— ECON Committee Press (@EP_Economics) June 27, 2023

A key point of this policy is the approved implementation of the Basel III — an international standard of banking that was accepted into these provisions by the European Parliament on February 8, 2023 — which states: “institutions shall apply a 1250% risk weight to their exposures to crypto-assets in the calculation of their own funds requirements.”

This differentiates the categorization for crypto-assets based on their risk characteristics and specific compliance conditions. It also outlines individual capital and liquidity requirements for each category, allowing supervisors to monitor exposure and calculate capital requirements, in addition to specifying disclosure requirements.

Negotiators are looking to implement a standardized “fit and proper” framework in order to organize key function holders and management body members’ suitability within institutions. In order to protect the autonomy of supervisory entities in the banking sector, the provisions intent to provide:

“A minimum cooling-off period for staff and members of governance bodies of competent authorities before they can take up positions in supervised institutions, and a limit on the time in office for the members of the governance bodies.”

The press release further stated that the agreement encompasses a “transitional prudential regime for crypto assets and on amendments to enhance banks’ management of ESG risks.”

Swedish Finance Minister Elisabeth Svantesson, who led the discussions, stated that these modifications “will boost the strength and resilience of banks operating in the Union,” according to the press release

“Harmonised ‘fit and proper’ framework” for branches of banks located outside the EU and supervising their EU operations were also part of the provisional agreement. Although the agreement is “ad referendum” and provisional, it requires endorsement from both the European Parliament and European Council before it can become law.