EU lawmakers to vote on tighter crypto, ESG rules for banks

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  • Lawmakers to vote on tougher shadow bank rules
  • Lawmakers seek to tie ESG with bonuses
  • Lawmakers seek to align with global rules on crypto

By Huw Jones

(Reuters) – Banks would have to set aside a punitive amount of capital to cover holdings of cryptoassets under a draft law due to be voted on by lawmakers on Tuesday.

The European Parliament’s economic affairs committee is due to vote on cross-party compromises, seen by Reuters, on a draft law which implements remaining elements of Basel III, a global accord which forces banks to hold more capital to cope with market shocks unaided by taxpayers.

One amendment states that banks would have to apply a risk-weighting of 1,250% of capital to cryptoassets exposures, meaning enough to cover a complete loss in their value.

This is in line with recommendations from the global Basel Committee of banking regulators in December.

The amendments also introduce a definition of “shadow banking”, the vast sector of insurers, hedge funds and investment funds that make up about half the world’s financial system and typically less regulated than banks.

The amendment requires the EU’s executive European Commission to publish a report by June 2023 analysing the possibility of introducing prudential limits on banks’ exposures to shadow banks.

Amendments also require renumeration policies at banks should be aligned with their transition plans to address environmental, social and governance (ESG) risks over the short, medium and long term.

The draft law introduces a new “fit and proper” regime for appointing bankers, with amendments saying there should be targets for a bank’s management body.

They should be “sufficiently diverse as regards age, gender, and geographical and educational background” according to a report from Jonas Fernandez, the committee member leading the negotiations on the draft law in parliament.

The amendments generally go further than changes made by EU states, who reached a deal among themselves in December and which generally focused on temporary carve-outs on some of the requirements to give banks more time to adapt, in the teeth of European Central Bank opposition.

After Tuesday’s vote the lawmakers and EU states will thrash out a final deal which would come into effect in 2025.

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