The race is on for the European Union to implement recently agreed capital requirement rules as January 2025 deadline rapidly approaches.
Agreed at the Basel Committee on Banking Supervision, the new rules force banks engaging with crypto assets to ensure risk is offset by sufficient capital reserves.
Representing the 10 largest economies, the Basel Committee on Banking Supervision is a global body aiming to normalise a standardised universal financial rulebook.
The punitive capital rules have been shaped by the fallout of the FTX saga – which has seen the once leading exchange rack up $3bn in unbacked debt – after failing to maintain reserves.
Yet, time is ticking for the EU – which had already introduced legislation aiming at regulating crypto asset trading (due to come into force in 2024).
This is problematic – the EU is the world’s 2nd largest legislature, and arguably the most complex – with policy proposed by the EU commission coming into force through co-decision of the European Parliament and Council of Ministers (representatives of EU member states).
The new Basel capital requirements have rendered the planned 2024 crypto asset legislation out-of-date, and the text of the rules will need expanding or entirely re-drafting before the end of 2024.
EU Parliament Elections Set To Delay Crypto Law Until 2025
To make matters worse, there are elections for the European Parliament in 2024 – which is likely to delay legislative action significantly.
This means that drafting a separate law to enact the Basel crypto rules could be next to impossible to approve before 2025 – leaving the EU in violation of the rules agreed to.
Details on the bloc’s agreement at Basel also reveal an suggestion that the EU securities watchdog (the ESMA) should work tightly with the European Banking Authority (EBA) on the categorisation of crypto assets.
Categorising crypto assets has become a hot topic in policy circles. With Gary Gensler’s attempts at the SEC to apply the Howey Test to crypto becoming the source of serial FUD in the industry.
America risks losing it's status as a financial hub long term, with no clear regs on crypto, and a hostile environment from regulators.
Congress should act soon to pass clear legislation. Crypto is open to everyone in the world and others are leading. The EU, the UK, and now HK. https://t.co/i9WeUZ7K6H
— Brian Armstrong (@brian_armstrong) February 16, 2023
Indeed, only last week did Gensler’s SEC ordered Kraken exchange to stop staking operations as it considered staking to be an unregulated security asset.
The argument here is that if a crypto asset is staked, this constitutes it being given to someone with the expectations of a return – a security product.
However, keen to avoid becoming bogged down in the intense speculation surrounding these classifications. The EU has additionally proposed maintaining a list of how existing crypto assets will be categorized.
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