The EU Parliament has approved new rules that will limit banks’ activities in the cryptocurrency market

The European Parliament’s economic committee on Tuesday approved a bill aimed at implementing regulations on banking operations after the financial crisis. The new regulations come into effect from January 2025. The provisions of the regulations also contain a thread about BTC and cryptocurrencies in general.

The EU agrees with BIS

In practice, the European Union implements the recommendation of the Bank of International Settlement (BIS), which basically divides cryptocurrencies into two separate groups. Group 1 represents tokenized assets and stablecoins with approved stabilization mechanisms. Group 2 includes stablecoins without stabilization mechanisms approved by BIS and volatile cryptocurrencies (eg BTC or ETH).

The above classification has meaning. According to the new rules, if a bank wants to deposit bitcoins and other cryptocurrencies, it must have “risk-weighted exposure amount” up to 1250%.

What does this complicated notation mean? European banks will need to hold more free capital than the value of the euro invested in the cryptocurrency.

Markus Ferber, a German member of the European People’s Party in the European Parliament, said the measures were aimed at “prevents volatility from cryptocurrency to transfer to [europejskiego] financial system”.

In addition, the new directive states that banks can hold a maximum of 2% of their capital in bitcoins and other cryptocurrencies. However, the European Parliament’s economic committee also approved several temporary exemptions to give banks more time to adapt to the regulations.

Already last year, the Basel BIS committee warned about cryptocurrencies. Since then, banks have been advised to invest a maximum of 2% of their total assets in digital currencies. We wrote more about it here.

The guidance approved yesterday is based on a draft finalized by the Basel Committee on Banking Supervision on 16 December. The committee is a group of several dozen central banks and banking regulators that do not have legislative powers themselves, but develop regulatory standards for banks.

As Ferber pointed out, lawmakers are citing the chaos in the cryptocurrency market in recent months as further evidence that such regulation is needed. The US, UK and other countries are taking similar steps, with the European Union setting a unique precedent by requiring banks to have enough capital to fully back up their cryptocurrency holdings.

Although the regulations may seem very negative at first glance, it should be emphasized that the BIS and the EU do not want to introduce a European ban on investing in bitcoin or other cryptocurrencies, but only introduce a limit and capital coverage for investments.

What about MiCA?

Work with MiCA is also ongoing in the background. It is about the whole package of European regulations on cryptocurrencies. The vote on it was moved to spring 2023 at the latest.

– MiCA is to be voted on in plenary in April and as far as I know the delay is technical due to translation problems a person familiar with the matter told the media.

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