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Future EU law may require banks to set aside a punitive amount of capital to support their cryptoasset holdings.
The European Parliament's Committee on Economic and Monetary Affairs is to vote on a bill later this week. The draft law would enable the entry into force of the outstanding elements of the Basel III agreement. The global financial framework imposes rigorous capital requirements on banks.
Under these requirements, banks will be required to apply a 1,250% risk weight to exposure to cryptoassets. In line with suggestions from the Basel Committee, this prohibitive amount is intended to cover a complete loss in asset value.
Shadow Banking and ESG
The legislation also includes other amendments that formally introduce the concept of “shadow banking.” Accounting for about half of the global financial system, they are less regulated than banks. An amendment instructs the European Commission to prepare a report on the prospect of limiting the exposure of banks to their more shaded counterparts.
Other changes aimed at implementing environmental, social and governance (ESG) policies. For example, banks will soon have to reconcile policies such as remuneration with objectives such as more sustainable integration. Other policies related to environmental factors include demographic targets that represent greater diversity within the bank leadership. After the vote, MEPs and member states will negotiate a final agreement that is expected to enter into force by 2025.
MiCA Delayed Again
Meanwhile, the Basel III amendments are distinct from the EU’s comprehensive legislation on cryptocurrency, Markets in Crypto Assets (MiCA). Last week, the EU announced that it would be postponing the draft’s release for a second time, until April 17, 2023.
The time remaining is necessary to translate the 400-page document in the bloc's 24 official languages, because the public is assured. After the legislation was finalised in Oct. 2022, the EU initially postposed the release of the draft that Nov. to Feb. 2023.
