EU wants fast crypto regulation for lenders

The European Union’s executive branch has urged the bloc to hasten the imposition of capital requirements on banks that hold cryptocurrencies in a forthcoming banking law, in order to meet a global deadline of January 2025. The Basel Committee of banking regulators from the world’s main financial centres has agreed that the deadline is a requirement for implementing capital requirements for banks’ exposures to crypto assets such as stablecoins and bitcoin.

The European Commission has noted in an informal discussion paper seen by Reuters that “for the time being, banks have very low crypto-asset exposures and only a limited involvement in providing crypto-asset-related services”. However, it is expected that banks will become more involved in this area. If the EU does not implement the rules by the Basel deadline, it risks delaying the entry of banks into the cryptocurrency market as separate EU rules for trading crypto assets are due to come into force in 2024.

The EU could either expand the banking law it is finalising, as called for by the European Parliament, or propose a new law in order to enforce Basel’s crypto rules. Parliament and EU states will have equal say on the banking law and are due to begin negotiating the final text, which could include provisions on crypto assets, the paper stated. Such provisions would provide clarity on requirements for crypto-asset exposures and ensure that the risks stemming from these are adequately addressed. The European Banking Authority (EBA) could work with the EU’s securities watchdog ESMA to ensure that crypto assets are correctly categorised.

The Commission paper also indicated that a separate draft law would not be available until the end of 2023 at the earliest, making it harder to approve a new law in time for the 2025 deadline. Basel has imposed punitive capital charges on unbacked cryptocurrencies like bitcoin and less conservative charges on stablecoins, which are backed by an asset or fiat currency. Mandating EBA, in cooperation with ESMA, to maintain a list of how existing cryptoassets are categorised could also be useful, according to the paper.