A bunch of changes has been approved by European lawmakers, which would mean that banks dealing with crypto would have to face stricter requirements.
The Economics and Monetary Policy Committee of the European Parliament passed some cross-party compromises under which banks would have to hold a greater amount of capital for protecting against possible crypto losses.
According to a spokesperson of the Committee, there was also a requirement for banks to provide full disclosures about their exposure to cryptocurrencies.
The European Parliament would have to give its approval for the new rules to become law, along with the finance ministers in the European Union.
One of the amendments indicated that a risk-weighting of 1,250% would have to be applied by banks to crypto in order to ensure protection against the possibility of their value being completely wiped out.
The purpose of the vote is to ensure that the rules in Europe are in accordance with the standards that had been suggested last year by the Basel Committee on Banking Supervision.
The group of supervisory authorities had stated that a cap should be imposed on the capital that banks can expose to crypto and standards were also proposed that would come into effect in 2025.
The Association for Financial Markets in Europe (AFME), which is the industry body, welcomed the vote of the Committee.
It said that this was an important step in the implementation of the reforms of the Basel Committee in the European Union.
AFME’s head of regulation, Caroline Liesegang, said that positive steps had been taken by the Parliament to change the legislative proposal of the Commission.
However, she did add that they need to provide a clear definition of crypto assets in the trilogue process, which would see the Commission, the Council, and the Parliament agree on the law’s final text.
The AFME stated that if there is no clear definition provided, then it could have an impact on tokenized securities.
This refers to the stock market’s digitization based on the blockchain, which has been called the financial market’s next generation by Larry Fink, the CEO of BlackRock.
Liesegang said that the crypto assets proposal needs more work because it has not defined the scope of tokenized securities.
However, it should be noted that the changes that have been approved by the economics committee of the EU Parliament have not been published as yet.
But, they are according to a draft report that had been submitted in 2021 by Villie Niinisto, the Finnish MEP.
According to those amendments, any crypto that has a value-based reference asset like stablecoins should be deemed as having the same risks as the asset in question.
Meanwhile, the risk weightage that should be assigned to unbacked crypto should be around 1,250%. The draft also talked about the exposure of an institution to an unbacked crypto asset.
It had stated that the exposure should not be higher than 1% of the bank’s Tier 1 capital, which refers to the core funds that are kept in its reserves.