The European Banking Authority (EBA) published on the 8 th of January a Consultation Paper on its draft Regulatory Technical Standards (RTS) to specify the technical elements necessary for institutions to calculate and aggregate crypto-asset exposures in relation to the prudential treatment of such exposures.
Taking into account the ongoing European developments in this area and the regulatory requirements introduced in CRR 3 which provide transitional prudential treatment for banks’ exposures to crypto assets.
The draft RTS aim to develop the relevant capital treatment for credit risk, counterparty credit risk, market risk and credit valuation adjustment risk for ‘ARTs’(asset referenced tokens) and ‘other’ crypto-assets exposures and align, to the extent possible, the capital treatment with the elements specified in the Basel standard on prudential treatment of crypto-asset exposures.
The draft RTS include the relevant technical elements on the use of netting, aggregating of long and short positions, criteria to allow hedge recognition for other crypto-assets, and the underlying formulas relevant for calculating the exposure value of crypto-assets for the counterparty credit risk and market risk treatment.
Taking into consideration the above-mentioned background, the RTS is proposing to:
• Prudent valuation of crypto-assets and off-balance sheet exposures.
• Institutions shall apply a risk weight of 250 % when calculating own funds requirements for credit risk for Crypto-Assets referred to in point (b) of Article 501d (2) CRR 3.
• Institutions shall apply a risk weight of 1250 % when calculating own funds requirements for credit risk for Crypto-Assets referred to in point (b) of Article 501c (2) CRR 3.
• The crypto assets are not eligible forms of collateral for the purpose of recognition as credit risk mitigation.
• Specific capital calculation requirements for crypto-assets that generate counterparty credit risks; credit valuation adjustment risk of an exposure to a crypto-asset for crypto assets.
• Calculation of own funds requirements for credit risk, market risk and credit valuation adjustment risk of an exposure in a crypto asset.
• Institutions calculating the net exposure to the counterparty for securities financing transactions with a crypto-asset as underlying, shall apply a volatility adjustment of 30% that is consistent with the volatility adjustment appropriate for other non-eligible securities.
• Institutions calculating the potential future exposure (PFE) add-on, institutions shall create a new risk category ’crypto assets ‘and: calculate the PFE add-on for this risk category similarly to the calculation for the foreign exchange risk category applying a supervisory factor of 32% for all crypto-asset/currency and crypto-asset/crypto-asset pairs, and a supervisory volatility of 120% for the delta adjustment of options.
• Institutions shall not use the internal model method or the simplified standardised approach for the calculation of their own funds’ requirements for counterparty credit risk for derivatives on crypto assets.
Consultation process: The deadline for the submission of comments is 8 April 2025. The EBA will hold a virtual public hearing on 4 March 2025 from 10:00 to 12:00 CET.
Conclusions
During the transition period, when no treatment for crypto assets is defined, credit institutions can register the crypto-assets and may calculate the necessary own funds requirements in independent manner, but this can impose significant risks for the financial stability by not having a harmonized approach of quantifying the crypto-exposures risk and evaluation for the own reserves.
The EBA shall analyze the potential costs and benefits of draft regulatory standards (RTS) developed by the EBA and these draft RTS are also important to ensure that the industry has clarity on how the crypto assets are treated.
By implementing these RTS, the EBA aims to ensure a way of properly calculating and capitalizing all types of risk of exposures to crypto-assets in a harmonized and robust manner, by correctly calculating the own funds requirements for exposures to crypto-assets, establishing the particularities of trading crypto-assets, in particular related to the availability of reliable price data or the lack of transparency regarding the price formation of crypto-assets on different exchanges or private places, as well as price differences.
COMMENTS