European lawmakers to introduce stricter crypto rules for banks

A new European law is seeking to force banks to address their exposure to crypto appropriately.

The European Parliament is on track to vote in tighter rules on cryptoassets.

The latest attempt to make the financial system more resilient to cryptocurrency shocks comes as part of a new piece of European Union (EU) law known as Basel III, a draft law of which has been seen by Reuters.

As a result, banks will be obligated to hold a punitive amount of capital to cover crypto assets, in a move that aims to see financial institutions hold more capital, rather than risk the need for taxpayer bail outs in a financial crisis.

This will also make banks think twice before they expose themselves to crypto, underpinning the financial system further and making it less prone to collapses such as Genesis or FTX’s most recent troubles.

According to Reuters, one of the amendments featured in Basel III, states that a risk-weighting of 1,250% must be applied to all crypto asset exposures.

The rate is based on a recommendation by the global Basel Committee of banking regulators and was issued in December.

Basel III is also tackling another matter – that of shadow banking – which it claims is part of the day-to-day activities of the financial system but has eluded definition until now.

Before the new law can be introduced, the European Commission will have to publish a report. One is expected by June this year.

Moving forward, banks will also have to address environmental, social, and governance risks in the short, medium, and long term. A vote is expected today, with the law coming into effect in 2025, Reuters said.

Previously, the EU passed the Markets in Crypto Assets legislation, designed to serve as guidance for cryptocurrency companies seeking to expand in the political alliance’s ecosystem.

The European Central Bank has also been involved with the regulation process and issuing its own recommendations and rules.

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Written by Alex

Reporter

Alex is a well-rounded crypto writer who focuses on general market and legal developments. His main interest lies in how crypto gaming can become a more permanent part of the gaming landscape and how blockchain holds benefits to players they are not even aware of.

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