The European Insurance and Occupational Pensions Authority (EIOPA) has proposed strict new rules requiring insurers to fully back their cryptocurrency assets with capital, citing the high volatility and inherent risks of digital assets. The move could significantly reshape how insurance firms manage crypto exposure across the European Union.
EIOPA Pushes for Stricter Crypto Regulations in Insurance Sector
In a recent consultation paper, EIOPA outlined four regulatory options to manage crypto risk, with its preferred approach requiring insurers to assume a full loss on their cryptocurrency holdings. This would impose a far tougher standard than current rules applied to traditional asset classes like stocks and real estate.
Stocks currently face capital charges between 39% and 49%, while real estate is subject to a lower capital charge of 25%. Under EIOPA’s proposal, crypto holdings would be treated as highly vulnerable, necessitating full capital coverage due to their speculative nature.
New Rules Aim to Bridge Regulatory Gaps in Crypto Oversight
The proposal seeks to address the regulatory divide between the Capital Requirements Regulation (CRR) and the upcoming Markets in Crypto-Assets Regulation (MiCA). EIOPA emphasized that even an 80% stress test on crypto exposures would not be “sufficiently prudent” for the insurance industry, reinforcing the need for robust capital safeguards.
Luxembourg and Sweden Likely to Be Most Affected
EIOPA’s data shows that Luxembourg and Sweden would be most impacted by the proposed rule, as they host the highest concentration of crypto-related insurance entities in the EU. While cryptocurrency assets currently make up just 0.0068% of the total insurance-related assets in the EU, regulators believe this number could increase rapidly in the coming years.
Focus on Long-Term Stability Despite Low Current Exposure
Though crypto remains a tiny fraction of the insurance sector’s portfolio, EIOPA stressed the importance of anticipating future risks. The authority said preemptive regulation would help ensure financial stability, especially as more insurers explore digital assets in search of yield and diversification.
