EU Closes Political Deal on Crypto Asset Regulations in Banking Sector

In a tweet, the European Union (EU) entered into a political agreement regarding the amendments to Capital Requirements Regulation and Directive (CRR). The deal will result in the introduction of new crypto regulations.

A few days ago, the EU policymakers pushed for stricter regulations to address challenges caused by unbacked crypto assets in the conventional financial sector.

EU Set to Introduce New Regulation for Cryptos

Following the Tuesday tweet conveyed by the European Parliament’s Economic and Monetary Affairs committee, multiple EU regulatory agencies agreed to hold a meeting to deliberate on the subject matter. In 2021, European policymakers proposed regulations to bar unbacked cryptos from the banking sector.

At the meeting, the Minister of Finance in Sweden, Elisabeth Svantesson, was appointed chair of the EU member states. Svantesson confirmed that the new rules aimed at improving the strength and resilience of the EU banks. She noted that the new legislation had outlined the potential risks battling the banking assets such as corporate loans.

Reflecting on the Council’s official announcement, it was observed that the market regulators would soon launch a “transitional prudential regime” for digital assets. However, the Council failed to provide further details concerning the proposed rules.

Reportedly the Basel Committee is formulating the global crypto asset banking rulebook. The committee estimated that the maximum weighted risk for all free-floating crypto assets translated to 1250%.

This implies that the financial institution will be required to issue a Euro of capital which will be equivalent to the Euro of Bitcoin (BTC) and Ether (ETH) the bank holds. The June 27 announcement discourages financial institutions from investing in the crypto market.

Scope of EU Political Agreement

During the advance dialogue, the European Commission issued a provision on ways to regulate stablecoins.Notably, members of the European government supported the commission’s stablecoin proposal.

The political agreement awaits final approval from the EU member states and other policymakers. The expected regulatory approval for the proposal is expected to take months.

Beyond this, the Basel Committee on Banking Supervision plans to introduce new banking policies. The Basel regulation will be effective from January 1, 2025.

A report from the European Parliament spokesperson confirmed that the regulators are yet to provide their final nod on the new rules. He restated that the transitional provision is expected to be implemented in January 2025, coinciding with the enforcement of the Basel III rules.

The spokesperson added that the main goal is to address risk caused by exposures to crypto assets that  affects banks. He underscored that the potential risks fails to be covered by the current prudential regulation.

Initially, the committee had proposed that bank exposures to digital assets should be a minimum of 1% and a maximum of 2%.

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