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EU demands crypto capital rules for banks

The bloc's executive has stated that strict capital rules for banks holding cryptoassets must be expedited in the European Union's forthcoming banking reform if Europe is to avoid missing a globally-agreed-upon deadline.

The global Basel Committee of banking regulators representing the world's most important financial hubs has set January 2025 as the deadline for establishing capital requirements for banks' exposures to cryptoassets such as stablecoins and bitcoin.

In an informal discussion document, the European Commission stated, "For the time being, banks have very low crypto-asset exposures and only a limited involvement in providing crypto-asset-related services."

"Banks have expressed interest in trading crypto-assets on behalf of their clients and to provide crypto-assets-related services."

EU law applies Basel's standards, and a delay could require banks to wait longer to enter the cryptomarket, as separate EU laws for trading cryptoassets come into effect in 2024.

To implement Basel's crypto regulations, the EU might either propose a new law or, as requested by the European Parliament, expand the banking law it is now finalizing.

According to the report, Parliament and EU states have an equal say in the banking law and are scheduled to begin discussing the final draft, which might contain regulations on cryptoassets.

The Commission document stated that this will provide banks with clarity regarding their requirements for crypto-asset exposures and ensure that these risks are effectively addressed.

"From an international perspective, it would also allow the EU to fully align itself with the implementation deadline agreed on at Basel level."

A separate draft law would not be introduced until at least the end of 2023, according to the paper. Midway through 2024, Parliament will hold elections, making it more difficult to pass a new law in time for 2025.

The Commission document also advises that the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) might work together to guarantee that cryptoassets are appropriately classified.

Basel has imposed severe capital charges on unbacked crypto currencies such as bitcoin, while stablecoins backed by an asset or fiat money are subject to less stringent capital requirements.

According to the paper, it could be advantageous to require EBA and ESMA to maintain a record of how existing cryptoassets are categorized.



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