The Economic and Monetary Affairs Committee, part of the European Parliament, has voted to impose strict restrictions on banks seeking to hold crypto.
Banks will have to treat crypto as among the riskiest class of holdings, according to a leaked document listing the final set of proposed amendments to a 2021 package intended to bring European Union bank capital rules into line with international norms – according to Coindesk reporting.
The measures are a bid to anticipate international norms that would limit the amount of unbacked assets such as bitcoin and ether lenders can hold before the European Commission proposes more extensive rules.
In the meantime, “banks will be required to hold a euro of own capital for every euro they hold in crypto,” Markus Ferber, the economic spokesman for the Parliament’s largest political grouping, said in a statement.
“Such prohibitive capital requirements will help prevent instability in the crypto world from spilling over into the financial system.
“Over the past couple of years, we have seen that crypto assets are high-risk investments,” he said.
The Association for Financial Markets in Europe, a lobbying group that represents traditional-finance firms, raised concerns that the scope of the amendment may be too wide.
“There is no definition of crypto assets in the [legislation], and therefore, the requirement may apply to tokenized securities, as well as the non-traditional crypto assets the interim treatment is targeted at,” say the organisation, which is calling for the issues to be dealt with later in the legislative process.
The move from the Parliament’s committee mimics rules set out by the Basel Committee on Banking Supervision, the international standard setter for the industry, which has proposed that holdings of unbacked crypto should be given the highest possible risk weighting, and also be limited as a proportion of a bank’s total issuance of core financial instruments.
In order to pass into law, the measures still need approval from the European Parliament and also have to be negotiated with national finance ministers who meet in the Council of the European Union as part of a fuller package of bank capital reforms.
It seems counterproductive. Regulators are there to protect consumers and allow consumers to work within a safe regulatory framework. If regulators are making it so difficult for banks to participate in the cryptocurrency market, I feel like its counterproductive to their thesis. Namely, that in over-regulating the confluence of banking and crypto, they are pushing consumers into the crypto world – which the regulators say they won’t regulate. I think that saying you have to have €1 of capital for every €1 of crypto banks hold is not going to make sense.
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