- An EU agency called for 100% capital backing for crypto insurers, citing high volatility.
- Circle, however, urged the agency to consider a ‘nuanced approach’ as crypto assets have varying risk profiles.
The European Union’s insurance watchdog, the European Insurance and Occupational Pensions Authority (EIOPA), has proposed 1:1 backing capital requirements for insurers dealing with crypto assets.
Per the agency, the 100% capital backing was appropriate due to the asset’s volatile nature. Part of its statement read,
“EIOPA considers a 100% haircut in the standard formula prudent and appropriate for these assets in view of their inherent risks and high volatility.”
Room for flexibility
The agency stated that this action would address a regulatory gap in the MiCA (Markets in Crypto Assets) framework, which excludes crypto insurers.
In fact, it was noted that Bitcoin [BTC] and Ethereum [ETH] had 82% and 91% in the past, hence the need to use 100% stress (an assumption that an asset could decline 100%).
EIOPA stated that Luxembourg and Sweden would face the greatest impact if the EU Commission adopted the proposal. These nations have over 90% exposure to crypto assets, making them particularly vulnerable under the suggested regulations.
Source: EIOPA
The agency admitted that a blanket 100% capital requirement may not suit a future with large-scale crypto adoption. In such a scenario, the watchdog stated,
“A possible broader adoption of crypto assets may, however, require a more differentiated approach down the line.”
In a rejoinder, stablecoin issuer Circle argued that not all crypto assets carry similar risk profiles and shouldn’t be slammed into the 100% stress factor. The firm recommended a ‘nuanced approach’ for capital backing.
Source: Circle
