EU calls for fast-track tough crypto capital rules for banks

The global Basel Committee of banking regulators from the world’s main financial centres has set a January 2025 deadline for implementing capital requirements for banks’ exposures to cryptoassets

Strict capital rules for banks holding cryptoassets must be fast-tracked in the European Union’s (EU) pending banking law if Europe wants to avoid missing a globally-agreed deadline, the bloc’s executive has said.

The global Basel Committee of banking regulators from the world’s major financial centres has set a January 2025 deadline for executing capital provisions for banks’ exposures to cryptoassets like stablecoins and bitcoin.

For now, banks have very low crypto-asset exposures and just a restricted participation in providing crypto-asset-related services, the European Commission (EC) said in an informal discussion paper seen by Reuters.

Banks have shown interest in trading crypto-assets on behalf of their clients and to provide crypto-assets-related services, it said.

Basel’s standards are applied in the European Union with a law, and a hold up could mean that banks have to wait further to enter the cryptomarket as other European Union rules for trading cryptoassets come into effect in 2024.

To impose Basel’s crypto rules, the European Union could either suggest a new law, or widen the banking law it is now finalising as called for by the European Parliament.

Parliament and European Union states have equal say on the banking law and are due to begin negotiating the final text, which could include the provisions on cryptoassets, according to the paper.

This would give banks clarity on their requirements for crypto-asset exposures and would ensure that risks stemming from these are adequately addressed, as per the Commission paper.

From an international perspective, it would also allow the European Union to fully align itself with the implementation time limit agreed on at Basel level, it said.

A separate draft law would not be forthcoming until the end of 2023 at the earliest, it said. Parliament goes to the polls mid-2024, making it difficult to approve a new law in time for 2025.

The Commission paper also proposes that the bloc’s European Banking Authority (EBA) could coordinate with the European Union’s securities watchdog European Securities and Markets Authority (ESMA) to make sure that cryptoassets are appropriately classified.

Basel has set penal capital charges on unbacked crypto currencies such as bitcoin, and less conservative charges on stablecoins that are backed by an asset or fiat currency.

It could also be useful to mandate European Banking Authority, in cooperation with European Securities and Markets Authority, to maintain a list of how current cryptoassets are categorised, according to the paper.