Banks step in to test crypto waters ahead of European Central Bank pan-EU licensing rules

European Central Bank Steps in as Banks Test Crypto Waters Ahead of Pan-EU Licensing Rules

The European Central Bank (ECB) said on Wednesday it will harmonize how banks offer cryptoassets to ensure they have enough capital and expertise in a sector some European Union lawmakers have described as the Wild West. Many crypto companies such as Binance and have been authorized in EU countries such as Italy, France, Spain, Greece or Germany after complying with national security measures to prevent money laundering and terrorist financing.

This comes ahead of pan-EU licensing rules from 2023.

The ECB has said banks are also considering whether to join the crypto sector, but national rules have largely shifted.

“In Germany, some crypto activities are subject to banking license requirements and to date, several banks have requested to be authorized to conduct these licensed activities,” the ECB said in a statement.

“It is in this context that the ECB is taking steps to assess license requests.”

The ECB, which directly regulates euro zone lenders such as Deutsche Bank, UniCredit and BNP Paribas, said it will check whether crypto activities are in line with a bank’s risk “profile”, which determines how much capital it holds.

The ECB will also check whether the bank can identify and assess risks in cryptoassets and whether board members and IT staff have “strong experience” in this area.

“Importantly, by working closely with national supervisors, the ECB will strive for greater consistency in prudential assessments across national regimes,” the ECB added.

Global regulators from the Basel Committee in Switzerland are evaluating whether banks should have specific capital buffers to hold crypto assets.

The EU is also reviewing its bank capital requirements legislation.

Ville Niinisto, a member of the Green Party in the European Parliament, has proposed an amendment that would limit bank holdings of bitcoin and other cryptocurrencies that are not backed by assets to more than 1 percent of a bank’s core Tier 1 capital.

Such a cap would need the support of the entire parliament and EU states to become law, a lengthy process.

Ninisto should also assess whether regulators require bespoke capital for the blockchain that underpins cryptoassets.

© Thomson Reuters 2022


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