The European Banking Authority (EBA) has released draft rules for banks looking to hold “unbacked” crypto assets like Bitcoin and Ether. As per these rules, European banks will be required to possess more capital against cryptocurrencies that are not stablecoins pegged against reserved assets.
The official statement from the EBA, released this week, refer to this draft as the “Regulatory Technical Standards (RTS)”. The guidelines clarify the required technical necessities for banks to calculate and aggregate crypto-asset exposures.
“These draft RTS further develop the relevant capital treatment for credit risk, counterparty credit risk, market risk, and credit valuation adjustment risk for asset reference tokens (ARTs),” the EBA noted.
The rules specify technical details for banks to adhere to while handling crypto assets. They cover topics like netting — which is the balancing out of gains and losses — combining long and short positions.
Additionally, the rules include specific formulas that the banks should use to calculate the value of crypto assets for both counterparty credit risk and market risk.
“Institutions have shown increasing interest in getting involved in crypto-assets activities,” the EBA noted, adding that this interest stems from banks looking to explore the potential for new revenue streams.
As more financial institutions wish to act as issuers, custodians, and service providers in the crypto sector, the EBA said, it is crucial to formulate detailed rules.
“The development of crypto-assets markets and activities has been marked by significant market innovation and advancements. However, this involvement also comes with challenges, including regulatory compliance, risk management, and the need for a robust technological infrastructure,” it said.
These MiCA-aligned draft guidelines will now head to the European Commission, which will assess them to approve or suggest recommendations within a time frame of three months. After this, the bill will be extended to the European Parliament for a final approval.
Once approved, the framework will become a compliance criteria for all European banks holding crypto on their balance sheets.