European Union lawmakers have imposed stringent measures on banks that hold digital assets in an effort to limit the amount of unregulated cryptocurrency that banks can hold.
Strict rules for banks holding cryptocurrency
The European Parliament’s Economic and Monetary Affairs Committee has increased capital requirements for institutions holding cryptocurrencies. The European Parliament’s Markus Ferber has announced that banks will now be required to back their cryptocurrency reserves with fiat currency on a 1-to-1 basis.
According to Ferber, given the risky nature of cryptocurrency investment, the new regulation is critical, and the capital requirements for banks will help maintain stability within the legacy financial system by preventing cryptocurrency volatility from affecting it. The new regulation may also apply to tokenized securities, according to the Association for Financial Markets in Europe. Along with the restrictions imposed on banks dealing with digital assets, European legislators have taken a firm stance when foreign banks serving customers in the EU are required to open local branches or convert existing ones into more heavily capitalized subsidiaries.
Regulators continue to increase oversight
The European Union’s move toward greater regulatory oversight of cryptocurrencies is consistent with a global trend, as regulators seek to protect the financial system from the volatility and uncertainty associated with the cryptocurrency market.
According to several experts, increased regulatory oversight is a critical step in the right direction. Kelvin O’Leary, a well-known crypto advocate, praised recent developments regarding regulators’ response to the infamous FTX scandal in a video interview with Kitco News.
According to O’Leary, the crypto industry has reached a tipping point in terms of regulation. He believes that increased oversight from lawmakers and regulators will compel crypto industry participants to act responsibly in order to remain compliant.