The Commission for Economic and Monetary Affairs of the European Parliament yesterday approved a bill to implement the Basel III rules on bank capital and liquidity requirements. A single clause related to crypto assets is included in the bill, which requires one euro of balance sheet capital for one euro of each crypto asset held.

This particular requirement is a stopgap measure that is intended to run until the end of 2024, as the European Commission has been asked to submit more detailed proposals by June 2023.

Because the full coverage of crypto assets proposed by the Basel Committee has not yet been addressed, the abbreviated treatment has some problems. The proposed 1,250% risk weight for crypto assets (the 1 for 1 equity clause) refers to ‘crypto assets’ without defining the term.

“More work is still needed on the crypto asset proposal to better define its scope and ensure that tokenized securities are not captured,” said Caroline Liesegang, director of Prudential Regulation at industry body AFME.

The final Basel proposals on crypto assets allow tokenized securities to have a conventional risk weight in most cases.

The timing is important because the DLT pilot regime covering tokenized securities goes into effect in March.

The document used for yesterday’s vote has not yet been formally released. There is still a long way to go before the bill is adopted because the European Union (EU) has its cumbersome trilogue process in which Parliament, the European Council representing member states and the European Commission come to an agreement before a final vote. Therefore, AFME suggested that the definition of crypto assets could be worked out during that process.

The legislation also includes environmental, social and governance (ESG) impact when assessing bank risks.