European Banking Authority Consultation Begins on Prudential Standards For Managing and Calculating Cryptoasset Exposures under Article 501d(5)

European Banking Authority seeks feedback on harmonised cryptoasset capital requirements for banks and prudential standards

The European Banking Authority (EBA) is seeking industry input on new draft regulatory technical standards (RTS) that aim to establish a harmonised framework for the prudential treatment of cryptoasset exposures across the EU.

This consultation, open until 8 April 2025, could shape the future of cryptoasset regulation under the Capital Requirements Regulation (CRR 3).

The EBA consults on draft technical standards on the prudential treatment of crypto assets exposures under the Capital Requirements Regulation | European Banking Authority

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Why the RTS Matter

Cryptoassets, from asset-backed tokens to decentralised currencies, have rapidly gained traction in global markets.

However, their integration into the traditional financial system has raised questions about risk management.

The RTS focus on addressing these concerns by aligning capital treatment with the Basel Committee's standards on prudential treatment of cryptoassets.

The consultation seeks views on methodologies for calculating exposures to cryptoassets and aggregating them into credit, counterparty credit, market, and credit valuation adjustment risks. This includes specific provisions for asset-referenced tokens, a category of cryptoassets designed to maintain value stability by being pegged to external assets like fiat currencies or commodities.

Harmonisation Across Borders

One of the RTS’s primary objectives is to ensure consistency in the way financial institutions across the EU treat cryptoasset exposures.

Regulatory fragmentation across Member States has previously created challenges for institutions operating across borders, often leading to inefficiencies and increased compliance costs.

By introducing a standardised approach, the EBA aims to simplify operations and improve financial stability.

This harmonisation also seeks to foster innovation by providing clarity and reducing uncertainties for market participants.

Key Aspects of the Draft RTS

The draft RTS cover several pivotal areas:

• Capital Requirements: Detailed rules on the calculation of risk-weighted assets for various types of cryptoasset exposures.
• Credit and Counterparty Risks: Provisions to ensure institutions account for default risks in cryptoasset transactions.
• Market Risk: Guidelines for evaluating potential losses arising from adverse price movements in cryptoasset markets.
• Credit Valuation Adjustment: Specific measures to address risks associated with the valuation of derivative instruments linked to cryptoassets.

The RTS also propose criteria for classifying different types of cryptoassets and stipulate the documentation requirements for institutions.

By doing so, the EBA aims to build a robust framework that accommodates the unique attributes of cryptoassets while ensuring regulatory rigour.

Basel Standards in Focus

The draft RTS draw heavily from the Basel Committee’s standards, which emphasise a conservative approach to cryptoasset exposures.

For instance, unbacked cryptoassets like Bitcoin may attract higher capital requirements due to their inherent volatility and speculative nature, whereas stablecoins tied to recognised assets could benefit from lower capital charges.

This alignment reinforces the EU's commitment to maintaining global consistency in financial regulations, particularly in areas where emerging technologies challenge traditional models.

Environmental Considerations and Implications for Stakeholders

The EBA’s consultation also reflects growing concerns about the environmental impact of cryptoassets.

With many cryptocurrencies relying on energy-intensive consensus mechanisms, such as proof-of-work, the RTS encourage institutions to incorporate sustainability considerations into their risk assessments.

For financial institutions, the RTS represent both an opportunity and a challenge. On the one hand, a standardised regulatory framework can facilitate smoother operations and improve access to cross-border markets.

On the other, adapting to these requirements may demand significant investment in compliance systems and processes.

For regulators, the consultation is a chance to gather feedback from stakeholders and refine the RTS to ensure they strike the right balance between innovation and risk management.

Regulatory Technical Standards on the calculation and aggregation of crypto exposure values | European Banking Authority

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Submissions

Comments on the draft RTS can be submitted until 8 April 2025. Once finalised, these standards will become a cornerstone of the EU's approach to regulating cryptoassets, setting a precedent for other jurisdictions grappling with similar challenges.

This consultation marks another step in the EU’s journey towards a more integrated and secure financial system that embraces technological advancements while safeguarding its stability. The outcome will likely influence not only the European market but also global discourse on the prudential treatment of cryptoassets.