EU Reaches Political Deal on Bank-Capital Legislation, Including Regulations for Cryptoassets

The European Union (EU) has taken a significant step towards implementing new bank-capital legislation, including regulations for cryptoassets. The objective is to establish rules that prevent unbacked cryptocurrencies from infiltrating the traditional financial system. This article delves into the details of the political deal reached by the EU, highlighting the implications for cryptoassets and the banking sector.

EU’s Political Deal on Bank-Capital Legislation

A political agreement was reached on new bank-capital regulations following lengthy deliberations with members from the European Parliament, national governments, and the European Commission. The agreement was revealed via a tweet from the Economic and Monetary Affairs committee of the European Parliament. The EU Council and legislators must now vote on the proposed legislation before it can become binding law. The European Commission initially introduced it in 2021.

The political agreement includes substantial adjustments to how banks evaluate the risk of business and mortgage loans in addition to restrictions for cryptoassets. The new regulations are designed to strengthen and stabilize banks doing business in the European Union. Elisabeth Svantesson, the Swedish Finance Minister who presided over the discussions on behalf of EU member states, highlighted the importance of banking in booming the banking sector.

Transitional Prudential Regime for Cryptoassets

According to the Council’s statement, the political agreement included a “transitional prudential regime for cryptoassets.” This clause indicates the EU’s desire to regulate cryptoassets in the financial system, even if specifics were not given. A worldwide crypto banking regulation is being developed by international standard-setters at the Basel Committee on Banking Supervision, and it suggests a stringent approach with high risk weightings for free-floating cryptocurrencies.

A compromise proposal from the European Commission, intended to relax the tough position on cryptoassets for regulated stablecoins, emerged as conversations progressed. This solution has the backing of EU governments since it finds a balance between regulation and market engagement. Under the agreed-upon law, stablecoins, which are backed by conventional assets, may be given preferential consideration.

The Approval Process and Timelines

Even when a political agreement has been achieved, it still needs to be approved. The legislation must be approved by a vote of the legislators and member states inside the EU Council before it can be fully implemented. It can take many months to complete this procedure, and it’s still unclear when the proposal will really become a law.