Regulators in the European Union are pushing for tougher crypto regulations. A draft report of EU proposed crypto laws posted on February 10 on the European Parliament website stipulates stringent oversight.
The report mandates European Union banks to invest in risk management to safeguard against the crypto assets volatility. As per the legal draft, crypto is considered a risk-weighted asset necessitating the regulators to prioritize digital law amendment.
European Union Proposed Crypto Bill
The desire to explore the digital space inspired the traditional financial sector to integrate crypto assets into their existing system. The EU proposed law aims to improve banks’ interaction with crypto assets.
A statement issued by the EU legislators on January 24 revealed that banks would be reporting their direct and indirect interactions with digital assets. The report disclosed the European Commission is upholding the formulation of tougher crypto regulation.
Before this, the EU Economic and Monetary Affairs committee observed that the involvement of financial systems in cryptocurrency transactions required further dialogue on the EU prudential framework. The committee argued that investing in extensive research would enable the regulators to combat crypto risk that might undermine the financial stability of the lending and borrowing institutions.
Also read:Furthermore, the committee encouraged the regulators to prioritize crypto-related dialogue given the accelerated crypto adoption.
The EU proposed crypto bill projected that the potential threat associated with cryptos carries a 1250% risk weight. The risk inherent in crypto-related activities is higher than the traditional financial assets such as mortgages despite generating low returns for banks. It implies to reduce the risks of the digital asset; banks must own capital that is equivalent to the crypto holdings.
Global Crypto Banking Laws
Last December, the Basel Committee on Banking Supervision (BCBS) revealed that the international crypto banking regulation would be effective in January 2025. Basel’s crypto rules require banks’ exposure with specific cryptocurrencies should range between 1% and 2% at the higher limit.
In addition, Basel’s proposal tasks the EU Commission to develop regulations that meet global standards.
A review of the draft bill illustrates that the EU fails to address Basel’s proposal on unbacked cryptos. Such omission necessitates the motion for the commission to integrate valuable amendments to the bill before June 2023.
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