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Banks Holding Cryptocurrencies Face Strict New Regulations in European Parliament

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Banks Holding Cryptocurrencies Face Strict New Regulations in European Parliament

A report on a draft measure that would require banks that hold cryptocurrencies to put aside a significant amount of capital in an attempt to mitigate possible risk has been published by the European Parliament.

EU lawmakers stated in a notice dated February 9 that any framework that is applied to crypto assets should “adequately mitigate the risks of these instruments for the institutions’ financial stability.” These lawmakers proposed that banks apply a risk weight of 1250% on their exposure to digital assets, which is one of the highest risk ratings for investments. The regulations were not supposed to take effect until the 30th of December in 2024, according to the draft legislation.

According to the report, “the rapid increase in the activity of financial markets on crypto-assets and the potentially increasing involvement of institutions in crypto-assets related activities should be thoroughly reflected in the Union prudential framework,” with the goal of “adequately mitigating the risks of these instruments for the institutions’ financial stability.” This recommendation was made in light of the fact that “the rapid increase in the activity of financial markets on crypto-assets and the potentially increasing involvement of institutions in crypto-asset “In view of the recent unfavorable events in the markets for crypto-assets, this matter is far more pressing than it already was.”

The parliament said that the proposed modification was in accordance with the recommendations made by the Basel Committee on Banking Supervision, also known as the BCBS, regarding the mitigation of possible risks. The legislators agreed that these guidelines have to be put into effect before the year 2025.

A vote on the legislation is anticipated to take place in April. The draft law said that the European Commission should present a proposal on the crypto framework by the 30th of June, taking into consideration the criteria under the EU’s Markets in Crypto-Assets framework, or MiCA. After then, it is probable that the whole parliament will be given the option to vote on whether or not the proposed measure should be made into law.

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