EU Banks Told by Regulator to Apply Bitcoin Caps Even Before They Become Law

Banks in the European Union should start applying caps on bitcoin holdings ahead of global norms set by the Basel Committee on Banking Supervision (BCBS) taking effect, supervisors at the European Central Bank said Wednesday.

While crypto has not yet made significant inroads into the bloc’s banks, the ECB said they should treat the assets as risky and limit holdings right away.

“The BCBS standard is not yet legally binding pending its transposition in the European Union,” said a newsletter from the ECB, which is responsible for directly supervising the largest banks in the currency bloc. “However, should banks wish to engage in this market, they are expected to comply with the standard and take it into account in their business and capital planning.”

The BCBS recently proposed to assign the highest possible risk weight of 1,250% to unbacked digital assets such as bitcoin (BTC), meaning banks have to issue capital equal to their crypto holdings. They would also be limited to holding crypto in amounts not exceeding 1% of their core capital known as Tier 1.

Read more: Basel Committee Endorses Global Crypto Banking Rules to Be Implemented by 2025

BCBS norms don’t have legal effect, though some lawmakers at the European Parliament already want to bring forward rules addressing key parts of the supervising body’s proposals.

A survey published by the ECB on Wednesday said that distributed-ledger technology is “barely used across banks,” with fewer than one in five seeking to apply the solutions, and that crypto activities and exposures are “insignificant.”

Read more: Restrictive Crypto Rules for EU Banks Confirmed in Published Legal Draft