Michaela
The European Union’s insurance regulator has put forward a new rule that would require insurers to hold capital reserves equal to their crypto holdings. Citing the “inherent risks and high volatility” of digital assets, the proposal aims to strengthen financial safeguards and protect policyholders from potential market instability.
The European Insurance and Occupational Pensions Authority (EIOPA) outlined the proposal in a Technical Advice report to the European Commission.
Unlike other asset classes such as stocks and real estate, which do not require full backing, the proposed measure would mandate insurers to maintain capital reserves equal to the value of their crypto holdings.
EIOPA emphasized that the proposal aims to bridge a regulatory gap between the Capital Requirements Regulation and the Markets in Crypto-Assets Regulation (MiCA). The agency noted that the EU’s existing insurance framework does not include specific guidelines for crypto assets, leaving insurers without clear regulatory direction on how to manage these holdings.
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The European Commission is weighing four potential approaches presented by EIOPA. One option is to leave current regulations unchanged, while another would impose an 80% “stress level” requirement on crypto assets. A third option proposes a stricter 100% stress level, ensuring firms hold capital equivalent to their crypto holdings.
The fourth approach urges the Commission to take a broader view, assessing the risks associated with tokenized assets as a whole. These stress levels dictate the capital reserves insurers must maintain to ensure solvency.
EIOPA recommended the third option as the most suitable approach. “A 100% stress is more appropriate and aligns with one of the approaches to the transitional treatment of crypto-assets under CRR,” the agency stated.
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EIOPA argues that a uniform approach to regulating crypto holdings would properly account for their high-risk nature while avoiding unnecessary complexity or additional reporting burdens for insurers and reinsurers, especially given the relatively small scale of their current crypto investments.
However, if crypto assets see wider adoption, a more nuanced regulatory framework may be necessary. EIOPA suggests that the treatment of crypto holdings under Solvency II should be reassessed in the future, taking into account evolving market conditions and regulatory measures in other financial sectors.
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MICHAELA
Michaela is a news writer focused on cryptocurrency and blockchain topics. She prioritizes rigorous research and accuracy to uncover interesting angles and ensure engaging reporting. A lifelong book lover, she applies her passion for reading to deeply explore the constantly evolving crypto world.
