EU watchdog proposes 100% crypto capital coverage

The European Insurance and Occupational Pensions Authority (EIOPA) has recommended mandating insurers to hold capital equivalent to the full value of their cryptocurrency holdings, citing risks tied to volatility.

The proposal, outlined in a March 27 Technical Advice report to the European Commission, aims to align crypto asset regulations with the Markets in Crypto-Assets (MiCA) framework.

EIOPA’s stance stems from crypto’s “inherent risks and high volatility,” as noted in its statement.

The authority rejected a proposed 80% stress level for crypto assets, arguing it was insufficient.

“An 80% stress to the value of crypto-asset exposures does not appear sufficiently prudent,” EIOPA stated, adding that a 100% stress aligns with transitional crypto-asset treatments under the Capital Requirements Regulation (CRR).

The measure would impose stricter requirements than those for traditional assets.

Stocks face capital charges ranging from 39% to 49%, while real estate requires 25%.

EIOPA emphasised that crypto’s historical volatility—Bitcoin (CRYPTO:BTC) and Ether (CRYPTO:ETH) have fallen 82% and 91%, respectively, in past downturns—justifies the stricter standard.

Luxembourg and Sweden, which account for 90% of Europe’s crypto-related insurance exposures, would bear the brunt of the rule.

Most holdings are structured in funds like exchange-traded products for unit-linked policyholders.

EIOPA acknowledged the current exposure is minimal (0.0068% of total undertakings) but stressed the need for preemptive safeguards.

The proposal faces scrutiny from industry players.

Circle, a stablecoin issuer, previously argued that blanket stress factors fail to distinguish lower-risk assets like stablecoins.

EIOPA countered that diversification offers no mitigation against crypto’s systemic risks.