EU wants unbacked crypto out of TradFi institutions

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The EU is charting new territory with its Advanced Banking Capital Policy, which now includes regulation for digital currencies. The development of the policy emerged from a meeting involving the European Parliament, member state governments and the European Commission:

On Tuesday 27/06, @EP_Economics negotiators reached an agreement on amendments to the Capital Requirements Regulation and Directive #CRR & #CRD @jonasfernandez with #EU2023SE, details to follow pic.twitter.com/ 7eRCgk7Eg5

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

A key point of this policy is the approved implementation of Basel III – an international banking standard which was accepted in these provisions by the European Parliament on February 8, 2023 – which states: “institutions apply a risk weight of 1,250 % to their exposures to crypto-assets in the calculation of their capital requirements.

This differentiates the categorization of crypto-assets based on their risk characteristics and specific compliance requirements. It also outlines individual capital and liquidity requirements for each class, allowing supervisors to monitor exposure and calculate capital requirements, in addition to specifying disclosure requirements.

The negotiators seek to put in place a standardized “fit and proper” framework in order to organize the suitability of key function holders and members of the management bodies within the institutions. In order to protect the autonomy of supervisory entities in the banking sector, the provisions aim to provide for:

“A minimum cooling-off period for officials and members of governance bodies of competent authorities before they can take up duties in supervised institutions, and a limitation of the term of office of members of governance bodies.

The press release further states that the agreement includes a “transitional prudential regime for crypto-assets and changes aimed at improving banks’ management of ESG risks.”

Swedish Finance Minister Elisabeth Svantesson, who led the talks, said the changes “will enhance the strength and resilience of banks operating in the Union”, according to the press release.

A “harmonised ‘fit and proper’ framework” for branches of banks located outside the EU and overseeing their operations in the EU was also part of the interim deal. Although the agreement is “ad referendum” and provisional, it must be approved by both the European Parliament and the European Council before becoming law.

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