Strict Crypto regulations for European banks? Here is what the EU parliament proposed

• There is a proposal in the EU parliament to require banks to give their exposure to cryptocurrency a risk weight of 1,250%.
• By 2025, lawmakers recommend that these rules be implemented.
• European banks have proven resilient and adaptable despite challenging market conditions and mounting geopolitical tensions.

In a report on a draft law from the European Parliament, it is suggested that banks holding cryptocurrency should set aside a significant amount of capital against risks.

EU legislators recently proposed applying a 1250% risk weight to banks’ exposure to digital assets in order to “adequately reduce the risks of these instruments for the institutions’ financial stability.” This is one of the most risky investment ratings. Such requirements would be in effect until December 30, 2024, according to the proposed legislation. 

According to the report, the Union’s prudential framework should thoroughly reflect the rapid increase in financial markets’ activity on crypto-assets, as well as the potentially growing involvement of institutions in crypto-assets-related activities, in order to adequately mitigate the risks of these instruments for the financial stability of the institutions.

This is especially important given the recent negative events in the crypto-asset markets. The Basel Committee on Banking Supervision, or BCBS, had issued recommendations for mitigating potential risks, and the parliament claimed that the proposed approach was consistent with those recommendations. These rules, according to lawmakers, should go into effect before 2025. 

Cryptocurrency vs. European Investment Bank

A vote on the issue is expected in April. According to the draught bill, the European Commission should present a proposal on the crypto framework by June 30, taking into account the EU’s Markets in the Crypto-Assets framework, or MiCA.

The proposed bill will then most likely be voted on by the entire parliament in order to become law. In a related development, the European Investment Bank (EIB) announced in early February that it would issue its first digital bond denominated in sterling, using both public and private blockchains. 

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