European Union lawmakers have imposed strict measures for banks holding digital assets in a bid to limit the amount of unregulated cryptocurrency that banks can hold.
Strict rules for banks holding cryptocurrencies
The European Union (E.U.) Parliament’s Economic and Monetary Affairs Committee has enforced increased capital requirements for any financial entity holding cryptocurrencies.
According to Markus Ferber, a member of the European Parliament, banks are now required to back their cryptocurrency reserves on a 1-to-1 scale with fiat currency, namely euros.
According to Ferber, the new regulation is essential given the risky nature of cryptocurrency investment, adding that the capital requirements for banks will help maintain stability within the legacy financial system by preventing cryptocurrency’s volatility from impacting it.
The Association for Financial Markets in Europe (AFME) added the new regulation may also apply to tokenized securities.
Along with the restrictions applied to banks dealing with digital assets, E.U. lawmakers have also adopted a stern position when foreign banks that serve customers in the E.U. are required to open local branches or convert current ones into more heavily capitalized subsidiaries.
Regulators continue to increase oversight
The E.U.’s move towards greater regulatory oversight of cryptocurrencies is in line with the global trend as regulators aim to protect the financial system from the volatility and uncertainty associated with the crypto market.
Several experts believe that increased regulatory oversight is an extremely important step in the right direction. In a video interview with Kitco News, known cryptocurrency advocate Kelvin O’Leary praised the recent developments regarding regulators’ response to the notorious FTX scandal.
According to O’Leary, the crypto industry is at a turning point with the peak of regulation. He believes that the increased oversight from lawmakers and regulators will force crypto industry players to operate responsibly in order to remain compliant.