This move comes in response to lawmakers' calls for stringent rules to prevent ‘unbacked cryptocurrencies’ from infiltrating the traditional financial system.
The announcement of this agreement was made public via a tweet from the European Parliament's Economic and Monetary Affairs committee. The tweet followed a meeting that brought together representatives from the European Parliament, national governments, and the European Commission, the body that initially proposed these rules back in 2021.
The Swedish Finance Minister, who chaired the talks on behalf of EU member states, stated that the new rules, which also recalibrate the risk weighting for banking assets such as corporate loans, aim to ‘boost the strength and resilience’ of banks operating in the Union. The Council's statement further confirmed that the deal includes a ‘transitional prudential regime for crypto assets, without providing further details.
Preliminary details suggested a hardline stance, with a maximum possible 1,250% risk weight assigned to free-floating cryptocurrencies. This would have meant that banks would have to issue a euro of capital for each euro of Bitcoin (BTC) or Ether (ETH) they hold, effectively discouraging them from investing in the market.
However, during the talks, the European Commission proposed a softer stance for regulated stablecoins. This proposal appears to have found favour among EU governments.
The agreement now requires approval from member states in the EU’s Council and lawmakers, which could take several months.
The final version of the text will be released alongside new banking rules introduced by the Basel Committee on Banking Supervision, the global standard setter for bank regulations. These rules are scheduled to be implemented by 1 January 2025. While the final agreed text is not currently available, transitional provisions will be in effect until January 2025, when the international Basel III rules are expected to take effect.
The objective is to mitigate potential risks faced by institutions due to their exposure to crypto-assets, which are not adequately addressed by the existing prudential framework. The committee suggested that a bank's exposure to certain crypto assets should not exceed 2% and should generally be lower than 1%.
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