The law aims to set high barriers to entry for cryptocurrencies without central backing.
The European Union is breaking new ground with its progressive bank capital policy, which now includes digital currency regulation. The policy was formulated at a meeting attended by the European Parliament, member state governments, and the European Commission:
A key point in this policy is the approved implementation of Basel III, an international banking standard that was accepted by the European Parliament for inclusion in these provisions on February 8, 2023; which states: "Institutions should apply a risk weight of 1,250% to their exposure to crypto-assets when calculating their own funding needs."
This classifies crypto assets according to their risk characteristics and specific compliance conditions. It also outlines separate capital and liquidity requirements for each category, allowing regulators to monitor risk exposure and calculate capital requirements, in addition to prescribing disclosure requirements.
Negotiators are seeking to implement a standardized “fit and proper” framework for the suitability of heads of key functions and members of management bodies within an organization. In order to protect the autonomy of banking regulators, the regulation aims to provide for:
“Staff and members of the competent authority’s governance body should be subject to a minimum cooling-off period before taking up a position at a regulated institution, and there should be limits on the length of time that members of the governance body can serve.”
The press release further states that the agreement contains “a transitional prudential regime for crypto-assets and amendments aimed at strengthening banks’ ESG risk management.”
Swedish Finance Minister Elisabeth Svantesson, who chaired the discussions, said the changes "will enhance the strength and resilience of banks operating in the EU," according to the release.
Part of the interim agreement also includes "harmonization of the 'appropriate' framework" for bank branches outside the EU and supervision of their EU operations. Although the agreement is a "pending referendum" provisional agreement, it needs the approval of the European Parliament and the European Council to become law.
