European Union lawmakers have voted to impose strict capital requirements on banks that hold cryptocurrencies, by a Reuters article.
In an effort to “prevent instability in the crypto world from spilling over into the financial system,” Markus Ferber, economic spokesperson for the European People’s Party in the European Parliament, said that “banks will be required to hold a euro of equity for every euro they hold in crypto.
Lawmakers cite the market chaos seen in recent months as further evidence that such regulation is necessary. With events like the collapse of FTX, Celsius and others fresh in the minds of users, the adoption of this law should be part of a wider set of regulations aimed at bringing the EU in line with international standards.
The rules adopted reflect those suggested by the Basel Committee of the Bank for International Settlements, which also suggested the highest possible risk level weighting for “unbacked crypto” holdings. Their recommendations imposed a 2% limit on Tier 1 capital that could be held in unsecured cryptocurrencies.
“There is no definition of crypto assets in the [legislation] and therefore the requirement may apply to tokenized securities, as well as non-traditional crypto assets subject to the interim treatment,” said the Association of Financial Markets in Europe (AFME), a lobby group from the EU representative of financial organizations like investment banks, indicating that the current form of the law may not be clear, but that the problems with the project could be resolved later.
While the European Parliament’s Committee on Economic and Monetary Affairs voted to approve the measures, for them to enter into full force they must also be approved by the European Parliament as a whole and presented to national finance ministers meeting in within the Council of the European Union.