EU Authority Calls for Total Insurance Protection of Cryptocurrency Assets by Insurers
The European Insurance and Occupational Pensions Authority (EIOPA) has proposed a novel prerequisite for insurers: they must hold capital commensurate in value to their crypto asset investments. The objective is to shield consumers from risks stemming from the volatility of cryptocurrencies like Bitcoin and Ethereum.
In a technical report submitted to the European Commission, EIOPA advocated for "full 100% coverage of crypto assets" as the most apt choice, dismissing a previous proposal of 80% coverage due to its inadequacy in addressing the high risk of total cryptocurrency devaluation.
This requirement will be more stringent than those applied to other asset classes. For example, equity and real estate investments in the EU necessitate capital coverage of 39-49% and 25%, respectively.
Despite the minuscule proportion of crypto assets in the insurance and reinsurance market, amounting to approximately €655 million, or 0.0068% of all European market operations, the new requirement could significantly impact insurers in Luxembourg and Sweden, collectively accounting for 69% and 21% of the sector's crypto investments, respectively.
Notably, on February 25, an advisor to the European Central Bank, Jürgen Schaaf, stated that Bitcoin is not suitable for national government reserves.
While the specifics of this requirement are yet to find widespread consensus, regulatory bodies across Europe are actively engaged in crafting regulations for crypto-assets and financial markets. For example, in the UK, the Financial Conduct Authority is considering regulations for market abuse, admissions, and prudential considerations in relation to crypto-asset activities.
As EIOPA delves deeper into the regulation of crypto assets within the insurance sector, further updates and discussions on this topic are expected.
- The European Insurance and Occupational Pensions Authority (EIOPA) suggests that insurance companies should fully cover their cryptocurrency investments, such as Bitcoin and Ethereum, with capital, in contrast to the previous proposal of 80% coverage due to the high risk of cryptocurrency devaluation.
- The new capital requirement for insurers' crypto asset investments, though minuscule in the European market at present (approximately €655 million), might significantly influence insurers in Luxembourg and Sweden, which collectively manage 69% and 21% of the sector's crypto investments, respectively.
- Unlike equity and real estate investments in the EU, which necessitate capital coverage of 39-49% and 25%, respectively, this proposed requirement for crypto asset investments will be more stringent, reflecting the unique volatility of these digital assets within the broader finance and technology business arena.
