The European Commission wants to make it easier for commercial lenders to hold stablecoins and tokenized assets, after lawmakers pushed to discourage crypto holdings as part of a wider banking reform.
A leaked document seen by CoinDesk seeks to moderate the tough position taken by the European Parliament, which in January sought to anticipate global standards by saying banks should be required to issue one euro of capital for each euro of crypto they hold.
Lawmakers from the European Union (EU) have said they want to see the “prohibitive” restrictions to stop crypto turmoil from spilling over into the commercial banking system. Their plan includes giving crypto a 1,250% risk weight, implying a maximum possible capital requirement imposed on lenders who wish to hold digital assets.
The commission's proposal, undated but issued following an April 18 meeting among negotiators, is to bring that down to a 250% risk weight for any stablecoin whose value is tied to non-fiat assets such as gold.
Tokenized assets and stablecoins based on fiat currencies such as the U.S. dollar would be treated the same as the underlying instrument, unless there’s an extra credit or market risk, the document added.
That’s in line with the bloc’s forthcoming Markets in Crypto Assets regulation, MiCA, set to take effect in July 2024, which will regulate stablecoin issuers and require them to hold appropriate reserves.
“Without a proper regulatory framework being in place to address the different types of risks faced by banks due to this new type of exposures, transmission channels between crypto-asset markets and financial markets might increase in type and size, leading to increased risks to financial stability and for individual banks,” said the commission document seen by CoinDesk.
Under the plan, supervisors would also need to check individual banks are correctly managing the risks of holding crypto such as cybersecurity, money laundering and valuation problems.
Other kinds of crypto such as bitcoin (BTC) and ether (ETH) would still have the maximum 1,250% risk weight, the document said – a degree of regulatory caution that has raised concerns from the traditional finance sector.
“The uncertainty and conservatism inhibits deal-making in the short term, much of which is to pilot, test and improve banks’ experience and understanding of this market in a controlled manner,” Sahir Akbar, managing director of prudential regulation at lobby group the Association for Financial Markets in Europe (AFME), said of the commission's plans in a statement emailed to CoinDesk.
The document represents an improvement for tokenized assets and electronic money, added Akbar, citing areas that AFME had previously raised as a concern.
The proposals are intended to anticipate detailed crypto standards from the international Basel Committee on Banking Supervision, which has already outlined a broadly similar plan. The commission said in the document that it will come up with a fuller, more permanent plan once the global standard setter has finalized its work after the end of 2023.
To pass into law, lawmakers have to hammer out an identical text with the EU’s member states, who meet in a body known as the Council, which has until now taken no formal position on the capital treatment of crypto. In practice, that takes place in a series of closed-door meetings among negotiators, mediated by the commission.
The document states that this is not a formal position of the commission, but it is likely to represent the view taken by officials during the talks. A spokesperson for the commission declined to comment on the leak.