ECB steps in as banks dip toes in crypto pool

In order to guarantee that banks have enough capital and knowledge in a field that some European Union politicians have referred to as the Wild West, the European Central Bank (ECB) said on Wednesday that it will standardize how banks provide cryptoassets.

Following compliance with national safeguards to prevent money laundering and terrorist funding, some cryptocurrency firms, including Binance and Crypto.com, have received authorization in EU nations including Italy, France, Spain, Greece, or Germany.

This comes before EU-wide licensing regulations, which won't take effect until at least 2023.

Banks were reportedly examining whether or not to participate in the cryptocurrency industry, according to the ECB, although country regulations varied greatly.

The ECB said in a statement that "many banks have applied to be authorized to perform these permitted operations" in Germany where "some crypto activities are subject to a banking licence requirement."

The ECB is acting to harmonize the evaluation of licence requests in this area.

Top euro zone lenders like Deutsche Bank, UniCredit, and BNP Paribas are directly regulated by the ECB, which said that it would look at whether cryptocurrency activities were consistent with a bank's risk "profile," which determines how much capital to retain.

The ECB will also examine a bank's ability to recognize and evaluate risks associated with cryptoassets, as well as whether board members and IT personnel have "strong expertise" in the field.

The ECB said, "Importantly, the ECB will cooperate closely with national supervisors to achieve more uniformity in prudential evaluations across national regimes."

Global regulators are evaluating the need for particular capital buffers for bank holdings of cryptocurrencies at the Basel Committee in Switzerland.

The legislation governing bank capital requirements is also being reviewed by the EU.

A Green Party MEP named Ville Niinisto has suggested a change that would limit bank holdings of bitcoin and other cryptocurrencies that aren't backed by assets to no more than 1% of a bank's basic tier 1 measure of capital.

To become a law, such a cap would require the support of the whole parliament and EU member states, which is a drawn-out procedure.

Additionally, Niinisto suggested that authorities examine if specific capital requirements are required for the blockchain that powers cryptoassets.