EU wants TradFi agency to exit unbacked cryptocurrencies

The law aims to set a high bar for cryptocurrencies without central backing to enter the mainstream financial industry.

The European Union is breaking new ground with its advanced bank capital policy, which now includes digital currency regulation. A meeting involving the European Parliament, member state governments and the European Commission developed the policy:

A key point of this policy is the approved implementation of Basel III, an international banking standard accepted by the European Parliament for inclusion in these provisions on 8 February 2023; which states: “Institutions shall apply 1250% to their business risk weight". Exposure to crypto assets when calculating your own funding needs. "

This classifies cryptoassets according to their risk characteristics and specific compliance conditions. It also outlines separate capital and liquidity requirements for each category, allowing regulators to monitor exposures and calculate capital requirements, in addition to specifying disclosure requirements.

Negotiators are seeking to implement a standardized "fit and proper" framework for the fit and properness of heads of key functions of the organization and members of governing bodies within the agency. In order to protect the autonomy of the banking supervisory body, the regulation aims to provide that:

"Staff and members of the governing body of the competent authority shall have a minimum cooling-off period before serving on a regulated body, and there shall be a limit on the length of time members of the governing body may serve."

The press release further states that the agreement contains a “transitional prudential regime for crypto assets and amendments aimed at strengthening ESG risk management at banks.”

Swedish Finance Minister Elisabeth Swantesson, who chaired the discussions, said the changes "will increase the strength and resilience of banks operating in the EU," according to a press release.

A "coordinated 'adequate' framework" for bank branches outside the EU and oversight of their EU operations is also part of the interim agreement. Although the agreement is a provisional agreement "subject to a referendum", it needs the approval of the European Parliament and the European Council to become law.