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EIOPA proposes one-to-one capital requirements for EU insurers’ crypto asset holdings
The European Insurance and Occupational Pensions Authority (EIOPA) published today its technical advice to the European Commission, recommending that a one-to-one capital requirement be applied consistently to all crypto holdings of EU (re)insurers. EIOPA considers a 100% haircut in the standard formula prudent and appropriate for these assets in view of their inherent risks and high volatility.
Crypto assets are a relatively new assets class in finance and their regulatory treatment is still evolving. While the Capital Requirements Regulation (CRR) and the Markets in Crypto-Assets Regulation (MiCAR) include transitional prudential measures for crypto assets, the EU’s regulatory framework for (re)insurers so far has lacked specific provisions on crypto assets. As a result, (re)insurers currently classify their crypto assets without a consistent approach. This raises concerns about the risk sensitivity of these practices and the level of prudence associated with them.
EIOPA’s empirical analysis of historical crypto asset data suggests that current capital weight options – such as the 80% stress level applied to intangible assets – in fact underestimate the risks associated with crypto exposures.
Policy proposal
To promote a harmonized, prudent and proportionate treatment of crypto assets, EIOPA is proposing the introduction of a blanket 100% capital requirement across all crypto holdings, regardless of their balance sheet treatment or whether the exposure is direct or indirect.
The uniform treatment EIOPA proposes would adequately reflect the high risks associated with crypto investments without creating unnecessary complexity or imposing additional reporting requirements on (re)insurers at a time when their investments in crypto assets are still modest in size.
A possible broader adoption of crypto assets may, however, require a more differentiated approach down the line. The treatment of crypto holdings under Solvency II should therefore be reviewed in the future in light of market developments and regulatory approaches in other sectors.
Read the Technical Advice
Background and next steps
This publication comes in response to the European Commission’s Call for Advice and follows a public consultation on the topic with stakeholders. The Commission will now consider EIOPA’s technical advice in the review of level 2 provisions of Solvency II.
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© FRVS+MPCP 2022. The European Times® News is registered as an EU Trademark. All rights reserved. The European Times® and the logo of The European Times® are EU trademarks registered by FRVS+MPCP.
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DISCLAIMER TRANSLATIONS: All articles in this site are published in English. The translated versions are done through an automated process known as neural translations. If in doubt, always refer to the original article. Thank you for understanding.
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