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EU Passes New Law on Crypto Assets and Introduces an Asset Classification For Banks

January 26, 2023 – According to reports from Reuters European Lawmakers approved a draft law on January 24, 2023 which includes crypto assets under the new Basel III capital rules from January 2025 onwards. The bill stipulates that cryptocurrencies, such as Bitcoin, will be considered as high-risk investments. The new law paves the way for the cryptocurrency regulation framework Markets in Crypto-Assets (MiCA).

The decision follows the standards of the Bank for International Settlement (BIS), which divides crypto assets into two distinct groups:

Group 1; Tokenized assets and stablecoins with approved stabilization mechanisms

Group 2; Stablecoins without BIS-approved stabilization mechanisms and volatile crypto assets (such as Bitcoin and Ethereum).

Assets classified under Group 2 requires banks to apply a risk weight of 1.25x, i.e. banks must hold more than one Euro of free capital for each Euro of crypto assets. According to Markus Ferber, German member of the EPP in the EU parliament this effort is designed to “prevent instability in the crypto world from spilling over into the broader financial system.”

In addition all EU banks can only hold a maximum of 2% of their capital in Group 2 assets.

Despite these new rules appearing to be restrictive it rules out a complete ban of cryptocurrencies. The law embraces the concept of cryptocurrencies and paves the way for a more widespread adoption in the European financial landscape.

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  1. Pingback: Blockchain vs. TradFi | Inside The Block

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