EU lawmakers vote to impose limitations and strict capital requirements on banks holding cryptocurrency.

EU lawmakers intent to pass strict regulations to tighten hold on banks holding crypto.
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European Union lawmakers have backed a draft law, making European banks comply with global banking rules. Banks will be permitted to hold only 2% of capital in Bitcoin, as well as be required to back every euro of cryptocurrency held with one euro in capital.

Markus Ferber, economic spokesperson for the EU parliament’s European People’s Party attributed this decision to an effort to “prevent instability in the crypto world from spilling over into the financial system”.

Lawmakers cited the crypto winter and numerous bankruptcies of digital assets firms and exchanges throughout 2022, like the implosion of disgraced exchange FTX. An even more expansive set of regulations for EU banks dealing with digital assets looms around the corner.

The passed regulation aligns with that of the Basel Committee on Banking Supervision, which set the “prudential treatment of banks’ exposures to cryptoassets”. The committee views crypto as an asset of highest possible risk level. Therefore, their recommendation is to place a 2% limit on unbacked crypto capital, such as Bitcoin, and back altcoins.

“There is no definition of crypto assets in the [legislation] and therefore the requirement may apply to tokenized securities, as well as the non-traditional crypto assets the interim treatment is targeted at,” commented a representative of the Association for Financial Markets in Europe (AFME), an EU lobby group representing financial institutions like investment banks.

While laws and regulations regarding cryptocurrency will be unclear as long as lawmakers lack sufficient knowledge and understanding of the subject, various restrictions and requirements will be passed regardless.