EU banking watchdog issues new draft guidelines on crypto risks

Amid ongoing developments in the world of cryptocurrency regulation, the European Banking Authority (EBA) has issued its final draft Regulatory Technical Standards (RTS), aimed at providing a clearer framework for banks’ prudential treatment of crypto asset exposures.

Indeed, the EU banking authority has introduced the draft RTS to address areas like credit risk, market risk, and counterparty credit risk in accordance with the Capital Requirements Regulation (CRR), according to the text of the legislation published on August 5.

Specifically, this RTS aims to harmonize how EU financial institutions calculate and aggregate exposures to various types of crypto assets, including asset-referenced tokens (ARTs) tied to traditional assets, other ARTs referencing crypto assets, and unbacked crypto like Bitcoin (BTC).

To this end, the regulator’s new draft guidelines incorporate technical provisions for netting, aggregation of long and short positions, hedge recognition, and formulas for measuring exposure in the context of counterparty credit and market risk.

What the new crypto risk guidelines bring

Furthermore, the EBA has now removed the previously proposed requirement for prudent valuation of fair-valued crypto asset exposures, responding to stakeholder concerns that this would add complexity without commensurate risk benefit.

Additionally, the organization introduced clarifications regarding the aggregation of long and short positions when determining exposure limits.

As it happens, the RTS aligns with both the Basel Committee’s standards for prudential treatment of crypto assets and the Markets in Crypto-Assets Regulation (MiCAR), guaranteeing consistency across EU and international frameworks.

Meanwhile, the draft standards serve as a transitional mechanism under Article 501d(5) of CRR 3, enabling financial institutions to more accurately capitalize crypto asset exposures while awaiting the establishment of a permanent prudential regime. 

The next item on the agenda is to submit the draft RTS to the European Commission for adoption. After that, the European Parliament and the Council will examine it before the Official Journal of the EU publishes it.

Elsewhere, United States Senator Cynthia Lummis in July proposed a new bill to review and streamline crypto taxation with the aim of addressing certain problems, such as double taxation and unclear tax policies affecting crypto staking, mining, and lending.