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Proposed EU Banking Rules Address Environmental & Crypto Risks

 |  June 27, 2023

European Union (EU) banks may soon have new rules around environmental and crypto risks.

The proposed new banking rules have been agreed upon by negotiators from the European Parliament, Council and Commission and will next be voted on by the Economic and Monetary Affairs Committee and the Council before being implemented, the European Parliament said in a Tuesday (June 27) press release.

“The new capital requirements regulation and directive (CRR/CRD) that we have just agreed on with the Council will strengthen the EU’s banking system, making it more resilient to potential future crises and adapting it to the Union’s climate goals,” Jonás Fernández, the lead member of the European Parliament in the negotiations, said in the release.

The proposed banking rules include requiring the financial institutions to take into account environmental, social and governance (ESG) risks when assessing the value of collateral; mandating the European Banking Authority (EBA) assess the need for a dedicated prudential treatment for exposure to ESG risks; and lowering the risk weight for exposures to the EU Emissions Trading System, according to the press release.

On the issue of cryptocurrency, the proposed rules require banks to disclose their exposure to crypto-assets. The negotiators also decided that the Commission should develop a legislative proposal to specify the prudential treatment of these exposures, the release said.

Read more: EU Crypto Regulations Pass

The proposed rules also require large financial institutions to share information on the suitability of candidates for management boards before they take up the position and require third-country credit institutions entering the EU markets to establish a branch in the EU and apply for authorization, per the release.

“All things considered, the deal we have reached is a good one, as the new banking legislation of the EU will certainly have a positive impact for citizens by lowering the risk of future banking crises, that could eventually lead to deep economic and social crises, as we unfortunately saw following the 2008 financial crash,” Fernández said in the release.

It was reported in March that lawmakers in Europe blamed U.S. regulators for failing to stop the banking crisis that started that month.

One key difference between America and Europe is the looser capital rules for smaller banks in the U.S., CNBC reported March 23.