Banks are allowed to hold this exposure in Bitcoin and Ethereum with new law

  • In a statement regarding the new development, a spokesperson for the AFME, Caroline Liesegang, said the Parliament, Commission, and Council should provide a clear definition of what can be considered as crypto assets.
  • The Parliament added that the modifications align with the measures by the organization in charge of international banking standards (BCBS).

The European Parliament’s economic and monetary affairs committee has voted on policies for banks holding digital assets such as Bitcoin and Ethereum. Part of the new policies is that such banks must hold a certain percentage of capital. According to an announcement by the European Parliament on Tuesday, the monetary affairs committee vote favored modifications of the capital requirements directive and the capital requirements regulation as it applies to banks with crypto holdings.

The bill proposal states that banks with crypto holdings must hold up to 1,250 percent of the amount they hold in crypto assets. The Parliament added that the modifications align with the measures by the organization in charge of international banking standards (BCBS, the Basel Committee On Banking Supervision).

The BCBS’ recommendations

The BCBS recommended categorizing crypto assets based on consultation papers released in the last three years. It also advised banks on how to address possible risks. According to the BCBS report, banks’ crypto exposure as of 2021 was over $9 billion. The legislative body said that banks must provide a detailed description of their risk management measures regarding digital assets.

The commission has until June 2023 to tender a bill proposal of custom regulatory standards for banks with digital assets exposure. However, these proposed modifications won’t become law until all members of the European Parliament (MEP) vote on them. The monetary affairs committee’s approval follows the EU lawmakers’ approval of the mica (markets in crypto assets) regulation three months ago.

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The primary objective of the mica regulation is to establish a uniform crypto regulation among EU member nations. One prominent feature of the mica legislation is that it mandates crypto firms to settle all transactions within 24 hours of initialization. Also, it requires these firms to be transparent about their trading volumes and pricing process.

Furthermore, the MEP agreed that a competent authority should address uneven capital distribution among banks and suggest appropriate capital redistribution models. Most MEP members agree that the events in the last few months (especially the collapse of FTX crypto exchange and Celsius, a prominent crypto lender) in the crypto industry have the approval of these new crypto measures mandatory.

AFME’s concerns

In its statement regarding the new development, a spokesperson for the Association For Financial Markets In Europe (AFME), Caroline Liesegang, stated that the Parliament had made significant progress with these new measures and that inter-institutions should discuss this proposal extensively at their next meeting.

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However, she further said the Parliament, commission, and council should clearly define what can be considered crypto assets. Liesegang said this explanation is necessary because the new measures could negatively impact tokenized securities if the wording isn’t precise. Tokenized securities are blockchain-built stock market digitization.

Larry Fink, BlackRock CEO, calls these tokenized securities the future of financial markets. Meanwhile, many industry experts have suggested that crypto firms should start getting acquainted with these new measures now because there is a wide gap between current regional regulations and the mica legislation.

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