EU calls for accelerated crypto capital rules for banks

By Huw Jones

LONDON (Reuters) – Strict capital rules for banks holding crypto assets must be accelerated in the European Union’s upcoming banking law if Europe is to avoid missing a globally agreed deadline, the bloc’s executive has said.

The global Basel Committee of banking regulators from the world’s major financial centers has set a January 2025 deadline for implementing capital requirements for banks’ exposure to crypto assets such as stablecoins and Bitcoin fixed.

“Currently, banks have very low crypto-asset exposures and have limited involvement in the provision of crypto-asset-related services,” the European Commission said in an informal discussion paper seen by Reuters.

“Banks have expressed interest in trading crypto assets on behalf of their clients and offering crypto asset-related services.”

The Basel standards are applied in the EU by law, and a delay could mean banks have to wait longer to enter the crypto market as separate EU rules for trading cryptoassets come into force in 2024.

To enforce the Basel crypto rules, the EU could either propose new law or expand the banking law it is now finalizing, as requested by the European Parliament.

Parliament and EU states have an equal say on the banking law and are set to start negotiations on the final text, which could include provisions on cryptoassets, the paper said.

This would provide banks with clarity on their requirements for crypto asset exposures and ensure that the risks arising from this are adequately addressed, the commission’s paper said.

“From an international perspective, it would also allow the EU to fully align with the implementation deadline agreed at Basel level.”

A separate draft law will not be available until the end of 2023 at the earliest, the newspaper said. Parliament goes to the polls in mid-2024, making it more difficult to pass a new law in time for 2025.

The commission paper also suggests that the bloc’s European Banking Authority (EBA) could coordinate with EU securities regulator ESMA to ensure crypto assets are properly categorized.

Basel has penalty capital charges on non-covered cryptocurrencies like bitcoin and less conservative fees set on stablecoins backed by an asset or fiat currency.

It could also be useful to mandate the EBA, in cooperation with ESMA, to keep a list of how existing crypto assets are categorized, according to the paper.

(Reporting by Huw Jones, Editing by Louise Heavens)