EU watchdog wants insurers’ crypto holdings 100% covered, citing volatility

The European Union’s security authorization has projected a broad regularisation that would mandate security firms to support superior adjacent to the worth of their crypto holdings arsenic portion of a measurement to mitigate risks for policyholders.

The caller proposal — made by the European Insurance and Occupational Pensions Authority successful a Technical Advice study to the European Commission connected March 27 — would acceptable a acold stricter modular than different plus classes, specified arsenic stocks and existent estate, which don’t adjacent request to beryllium half-backed.

“EIOPA considers a 100% haircut successful the modular look prudent and due for these assets successful presumption of their inherent risks and precocious volatility,” it said successful a abstracted statement.

Such a measurement would capable a regulatory spread betwixt the Capital Requirements Regulation and Markets successful Crypto-Assets Regulation (MiCA), EIOPA said, noting that the European Union’s regulatory model for insurers presently lacks circumstantial provisions connected crypto assets.

Circle argued successful January that a broad 100% accent origin connected crypto assets didn’t relationship for lower-risk stablecoins. Source: Circle

EIOPA outlined 4 options for the European Commission to see — one: marque nary changes; two: mandate an 80% “stress level” to crypto assets; and three: mandate a 100% accent level to crypto asset.

The accent level percentages find however overmuch superior firms request to clasp to enactment solvent.

The 4th enactment called connected the European Commission to see the risks of tokenized assets much broadly.

EIOPA said enactment 3 would beryllium the astir due option.

“An 80% accent to the worth of crypto-asset exposures does not look sufficiently prudent,” whereas “a 100% accent is much due and aligns with 1 of the approaches to the transitional attraction of crypto-assets nether CRR,” EIOPA said.

The 100% accent refers to the presumption that the crypto plus prices could autumn by 100% and that diversification — spreading the hazard crossed antithetic assets — wouldn’t not trim this stress. EIOPA pointed retired that Bitcoin (BTC) and Ether (ETH) person fallen 82% and 91%, respectively, successful the past.

A 100% superior complaint for crypto assets would reflect a acold stricter approach compared to stocks, which scope betwixt 39% and 49%, and existent estate, which incurs a 25% superior charge, according to solvency superior requirements laid retired successful the Commission Delegated Regulation 2015/35.

EIOPA said a 100% superior complaint for crypto asset-related (re)insurance undertakings shouldn’t beryllium “overly burdensome” and that determination would beryllium nary worldly costs for policyholders.

“The superior requirements would afloat seizure the hazard of crypto-asset with a affirmative interaction connected policyholder extortion successful lawsuit determination are worldly exposures successful the future.”

Related: Tabit offers USD security policies backed by Bitcoin regulatory capital

EIOPA acknowledged that the stock of crypto-asset (re)insurance undertakings accounts for conscionable 655 cardinal euros oregon 0.0068% of each undertakings successful Europe — adjacent referring to it arsenic “immaterial.”

“At the aforesaid clip crypto assets are precocious hazard investments which whitethorn effect successful full nonaccomplishment of value,” EIOPA said, explaining wherefore it recommends enactment three.

Luxembourg and Sweden could beryllium deed hardest by the projected rule

Insurers successful Luxembourg and Sweden are apt to beryllium the astir affected, according to a Q4 2023 study cited by EIOPA, which recovered that these 2 countries accounted for 69% and 21% of each crypto asset-related exposures among (re)insurance undertakings.

Ireland, Denmark and Liechtenstein besides accounted for 3.4%, 1.4% and 1.2% of the undertakings. 

Most of these undertakings are structured wrong funds, specified arsenic exchange-traded funds, and held connected behalf of unit-linked policyholders, EIOPA noted.

Split of crypto-asset vulnerability proxy per European state successful Q4 2023. Source: EIOPA

EIOPA, however, acknowledged that a broader adoption of crypto assets successful the aboriginal whitethorn necessitate a much “differentiated approach.”

Magazine: Crypto fans are obsessed with longevity and biohacking: Here’s why