EU watchdog pushes for strict capital rules on insurers’ crypto holdings

The European Insurance and Occupational Pensions Authority (EIOPA) has proposed that insurance firms must fully back their cryptocurrency holdings with capital. The recommendations are intended to address the ‘inherent risks and high volatility’ associated with digital assets.

EIOPA presented four regulatory options, with its preferred choice requiring insurers to assume a total loss on crypto holdings. It would mean a far stricter standard than those applied to traditional assets such as stocks and real estate.

Stocks face capital charges ranging from 39% to 49% under existing solvency capital regulations. In contrast, real estate is subject to a lower charge of 25%.

The proposed measure aims to bridge a regulatory gap between the Capital Requirements Regulation (CRR) and the Markets in Crypto-Assets Regulation (MiCA). EIOPA stated that an 80% stress level for crypto holdings would not be ‘sufficiently prudent’.

Luxembourg and Sweden could be the most affected if the proposal is adopted. They account for the largest share of crypto-related insurance undertakings in Europe.

Despite crypto holdings currently making up just 0.0068% of total insurance-related assets in the EU, EIOPA stressed the potential for future growth and the need for stringent safeguards.

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