EU has applied 1250% risk factor to digital assets
2023.02.13 14:31
EU has applied 1250% risk factor to digital assets
By Tiffany Smith
Budrigannews.com – A report on a draft bill that calls for banks that hold cryptocurrencies to set aside a significant amount of capital to deal with potential risk has been published by the European Parliament.
Legislators from the European Union issued a notice on February 9 stating that any framework for crypto assets should “adequately mitigate the risks of these instruments for the institutions’ financial stability.”
They suggested that banks apply a risk weight of 1,250% to their exposure to digital assets, which is one of the highest risk ratings for investments. According to the proposed law, these requirements would not take effect until December 30, 2024.
The report stated, “In order to adequately mitigate the risks of these instruments for the institutions’ financial stability, the rapid increase in the financial markets’ activity on crypto-assets and the potentially increasing involvement of institutions in crypto-assets related activities should be thoroughly reflected in the Union prudential framework.” Given the recent negative developments in the markets for crypto-assets, this is even more urgent.
According to the parliament, the proposed change was in line with the BCBS’s recommendations regarding addressing potential risks. According to lawmakers, these regulations should be put into effect by 2025.
A proposal for the cryptocurrency framework that takes into account the requirements of the EU’s Markets in Crypto-Assets framework, or MiCA, was required by the draft bill to be submitted by June 30. A vote on the measure is anticipated in April. The proposed bill will likely then be put to a vote by the entire parliament to become law.
