• The European Commission is proposing to lower the risk weight for stablecoins and tokenized assets to 250%, which aligns with the forthcoming Markets in Crypto Assets regulation (MiCA).
• Bitcoin (BTC) and Ethereum (ETH) will still carry the maximum risk weight of 1,250%.
• Supervisors must ensure banks properly manage risks associated with holding cryptocurrencies, such as cybersecurity, money laundering, and valuation issues.
EU Proposal Seeks to Lower Risk Weight for Stablecoins
The European Commission is aiming to facilitate commercial lenders’ inclusion of stablecoins and tokenized assets by lowering the risk weight from 1,250% to 250%. This aims to counter efforts by lawmakers discouraging crypto holdings as part of broader banking reforms. Bitcoin (BTC) and Ethereum (ETH) would still carry the maximum risk weight of 1,250%.
MiCA Regulation Aligns With EU Proposal
The proposal aligns with the forthcoming Markets in Crypto Assets regulation (MiCA), effective July 2024, which regulates stablecoin issuers and mandates appropriate reserves. It also warns of increased risks to financial stability if a regulatory framework isn’t established to address risks from exposure to crypto-assets.
Banks Must Manage Risks Associated With Cryptocurrencies
Supervisors must ensure banks properly manage risks associated with holding cryptocurrencies, such as cybersecurity, money laundering, and valuation issues. The proposal requires supervisors to ensure banks properly manage these risks associated with holding cryptocurrencies.
EU Commission Anticipates Detailed Standards From Basel Committee
The proposals anticipate detailed crypto standards from the Basel Committee on Banking Supervision. The Commission plans to finalize a more comprehensive strategy after 2023 once global standards are in place.
Conclusion
This proposal seeks to balance regulations between preventing potential crypto turmoil from impacting the commercial banking system while allowing for inclusion of stablecoins and tokenized assets into bank portfolios. It is necessary that banks properly manage their associated risks when dealing with cryptocurrencies while allowing for innovation within financial services that can benefit society overall.