EU Reaches Political Agreement on Crypto-Asset Regulations

The European Union has reached a political agreement on new bank-capital legislation to regulate crypto-assets, addressing concerns about their impact on the traditional financial system.

Key Points

• The European Union (EU) has reached a political agreement on new bank-capital legislation to regulate crypto-assets.
• The agreement aims to address concerns about unbacked cryptocurrencies entering the traditional financial system and proposes restrictive measures.
• The legislation must undergo a voting process by member states in the EU’s Council and by lawmakers before coming into effect, which could take several months.
• The regulations include changes to risk evaluation for corporate and home loans, alongside the introduction of a transitional prudential regime for crypto-assets.

The European Union (EU) has made a significant stride towards regulating crypto-assets by reaching a political agreement on new bank-capital legislation. This agreement aims to address concerns about unbacked cryptocurrencies entering the traditional financial system, leading lawmakers to propose restrictive measures.

The announcement of the deal was shared through a tweet from the European Parliament’s Economic and Monetary Affairs committee. The agreement was forged after a meeting involving representatives from the European Parliament, national governments, and the European Commission, which initially introduced the proposed rules earlier this year.

On Tuesday 27/06 @EP_Economics negotiators struck a deal
on changes to Capital Requirements Regulation & Directive #CRR & #CRD @jonasfernandez w/ #EU2023SE details will follow pic.twitter.com/7eRCgk7Eg5

— ECON Committee Press (@EP_Economics) June 27, 2023

For the legislation to come into effect, it must undergo a voting process by member states in the EU’s Council and by lawmakers. This process can be time-consuming and may last several months. In addition to regulations for crypto-assets, the political deal also includes extensive changes to the evaluation of risk associated with corporate and home loans, which has caused some controversy.

Significance of the New Rules

Swedish Finance Minister Elisabeth Svantesson, who chaired the negotiations on behalf of EU member states, emphasized that the new rules aim to strengthen the resilience of banks operating within the Union. The Council statement confirmed the inclusion of a “transitional prudential regime for crypto assets,” but did not provide further details.

While the Basel Committee on Banking Supervision is finalizing global standards for crypto banking regulations, initial details suggest a strict approach, with a maximum risk weight of 1,250% assigned to free-floating cryptocurrencies. This means that banks would be required to hold one euro of capital for each euro of bitcoin (BTC) or ether (ETH) they possess, discouraging market participation. EU parliamentarians are eager to implement these measures promptly.

During the negotiations, the European Commission proposed a compromise that slightly relaxes the stringent regulations on regulated stablecoins. This proposal has gained support from EU governments, who also need to agree for the bill to become law.

It is important to note that the legislation is still subject to the voting process and may undergo further amendments. However, the EU’s progress towards regulating crypto-assets demonstrates its commitment to ensuring the stability and security of the traditional financial system in the face of evolving technologies.