European lawmakers pave the way for tougher crypto rules for banks

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European lawmakers have approved a set of changes that will place tough new requirements on banks that do business with crypto.

The Economic and Monetary Affairs Committee of the European Parliament today adopted cross-party compromises that will require banks to hold more capital to protect against potential crypto losses.

A Committee spokesperson confirmed to Decipher that the measures adopted include a requirement for banks to disclose whether they are exposed to cryptocurrencies.

To become law, the new rules will need to be approved by the European Parliament, as well as EU finance ministers.

A version of the amendments seen by Reuters would require banks to apply a 1,250% risk weight on crypto, guarding against the impact of their totally wiped out value.

The vote is part of efforts to align European rules with standards suggested by the Basel Committee on Banking Supervision last year. The group of supervisors proposed that there should be limits on the share of a bank’s capital that could be exposed to crypto-assets and set standards that should be implemented by the start of 2025.

The committees’ vote was welcomed by the Association of Financial Markets in Europe (AFME), which said it was an important step in the EU’s implementation of the international Basel III reforms. .

Parliament has made positive progress via changes to the Commission’s legislative proposal which should be given due consideration in inter-institutional negotiations, Caroline Liesegang, head of prudential regulation at AFME, said in a statement.

But she added that the definition of crypto assets should be clarified in the trialogue process, by which Parliament, Council and Commission agree on the final text of a law.

Tokenized securities in Europe

AFME fears token securities, the blockchain-based digitization of the stock market that BlackRock CEO Larry Fink has called the next generation of financial markets, could be hit by regulation if the wording is not clarified .

More work is still needed on the crypto asset proposal to better define its scope to ensure tokenized securities are not captured, Liesegang said.

The final text of the amendments approved by the Economic Committee of the European Parliament has not yet been published.

But they are based on a draft report first presented by Finnish MEP Ville Niinisto in 2021.

These amendments stipulated that crypto whose value is based on a reference asset, such as stablecoins, should be subject to the same risk weights as the reference asset, while unsecured crypto would receive the risk weight of 1250%.

The draft also limited an institution’s total exposure to unsecured crypto assets to no more than 1% of its Tier 1 capital, the core funds held in a bank’s reserves.

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