EU reaches regulation agreement for crypto

The European Union (EU) has announced a political agreement on revisions to the Capital Requirements Regulation and Directive, which includes the introduction of new regulations for crypto assets. This decision comes as a response to calls from lawmakers to establish stringent rules to prevent “unbacked cryptocurrencies” from infiltrating the traditional financial system.

The European Parliament’s Economic and Monetary Affairs committee shared the news of the agreement through a tweet. The agreement was reached after a meeting involving representatives from the European Parliament, national governments, and the European Commission, the entity that initially proposed these regulations in 2021.

Elisabeth Svantesson, the Swedish Finance Minister who chaired the talks on behalf of EU member states, highlighted that the new rules, which also recalibrate the risk weighting for banking assets such as corporate loans, aim to enhance the strength and resilience of banks operating in the EU.

While specific details of the agreement were not provided, it was confirmed that it includes a “transitional prudential regime for crypto assets.” Earlier indications suggested a strict approach, with a potential maximum risk weight of 1,250% assigned to free-floating cryptocurrencies. However, during the discussions, the European Commission proposed a more lenient approach for regulated stablecoins, which seemed to gain favour among EU governments.

The agreement now requires approval from member states in the EU’s Council and lawmakers, a process that may take several months. The final text will be issued alongside the new banking rules set to be introduced by the Basel Committee on Banking Supervision, the primary global standard setter for prudential banking regulations. These rules are planned to be implemented by January 1, 2025.

A spokesperson for the European Parliament explained that the goal is to address potential risks for institutions arising from their exposure to crypto assets that are not adequately covered by the existing prudential framework. The committee suggested that a bank’s exposure to certain crypto assets should not exceed 2% and generally should be lower than 1%.