A European Parliament committee voted on Tuesday to require banks holding crypto assets to follow stricter laws to ensure capital requirements. An amendment to a bill covering financial capital requirements for traditional institutions was proposed, which calls for a risk-weighting of 1,250% for crypto-assets exposures, as reported by Reuters.

This would mean that when the rules take effect, banks will need to hold enough capital reserves to cover the entire crypto-asset exposure and will not be able to gain leverage. This proposed percentage is the highest level of securitization proposed by Basel III reforms established by the Basel Committee on Banking Supervision, which sets international banking standards.

The bill also includes that the European Commission should examine the necessity of specific prudential treatment for crypto assets and if necessary, to propose legislation in this regard, as stated in the draft report.

The proposed changes include the creation of a definition for “shadow banking,” which refers to the large and typically less regulated sector of financial institutions such as insurers, hedge funds, and investment funds that make up about half of the global financial system.

The amendments also task the European Commission with publishing a report by June 2023 to assess the feasibility of implementing prudential limits on banks’ relationships with shadow banks. Additionally, the amendments call for aligning banks’ remuneration policies with plans to address environmental, social, and governance risks over the short, medium, and long term.

Lastly, the draft legislation includes a new “fit and proper” standard for appointing bankers, with targets for the management body of the bank.

The proposed amendments to regulations go beyond the adjustments made by EU member states in December, which mainly provided temporary exemptions to certain requirements in order to give banks more time to comply, despite opposition from the European Central Bank. Following Tuesday’s vote, negotiations between lawmakers and EU states will take place to finalize the agreement, which will be implemented in 2025.

European Union Finance Ministers Issue Statement Regarding The Digital Euro

In the latest development regarding mass-scale crypto adoption, Eurozone finance ministers issued a statement related to the implementation of the digital euro. The monetary authority stated that they have thouroughly examined the political aspects of the potential digital currency. The statement was released on January 16th, in conjunction with the European Central Bank’s report on the progress made in designing the digital euro.