ECB issues crypto licensing guidelines for the banking sector

The European Central Bank (ECB) has issued a new statement on the licensing of crypto-asset activities, reinforcing the commitment of European regulators and supervisors to harmonize regulations across the continent. The ECB stresses that crypto-asset markets are “developing rapidly”. As the body in charge of banking authorizations and European banking supervision, it wants to ensure that banks engage in the crypto space “safely”.

The ECB argued that the current national rules diverge considerably: “In Germany, certain crypto activities are subject to a banking license requirement and to date several banks have applied to be allowed to carry out these activities under license. It is in this context that the ECB is taking steps to harmonize the assessment of license applications.

When assessing license applications related to crypto-asset activities and services, the ECB will pay “particular attention” to:

  • Business Plans: How does the proposed activity fit with the institution’s overall activity and risk profile?
  • Internal governance: Do the institution’s policies and procedures adequately identify and assess the risks specific to crypto-assets?
  • Suitability and Appropriateness Assessments: Do banks have the appropriate level of knowledge and experience for the crypto industry they are getting into? Are IT managers and risk managers in place to ensure appropriate protection?

In its statement, the ECB also highlights the particular types of risks associated with crypto-assets. These include:

  • Theft of cryptographic key
  • Compromising login information
  • Technology vulnerabilities associated with outsourcing to third-party vendors
  • The need for appropriate governance to take account of a bank’s AML/CFT risk profile

The Basel Committee on Banking Supervision is conducting ongoing work on the prudential treatment of crypto-asset exposures, including the need for specific liquidity requirements. Companies can contribute to their second public consultation before September 30, 2022.

Tracking of crypto-assets

The ECB’s intervention comes months after the European Parliament introduced legislation to ensure the traceability of crypto-assets, as part of a broader package of AML reforms, including rules for cryptocurrency markets. assets (MiCA). Introduced in 2020, MiCA provides a solid legal framework for the development of crypto-asset markets in the EU. It has been widely well received across the industry due to its unique licensing offering, as well as its ability to increase business credibility and promote its adoption by conventional banks. The ECB’s involvement in harmonizing crypto for banks reflects the importance of this benefit.

Ownership, control and liquidity related to crypto-assets are key emerging areas of interest for regulators across Europe. In the UK, the Financial Conduct Authority (FCA) has released new rules on ownership of crypto-asset companies. From August 11, 2022, anyone acquiring 25% or more control of an FCA-registered crypto-asset company must receive prior approval from the FCA. The regulator notes that it is now a “criminal offence” to acquire the property without prior approval.

Next steps

With harmonized frameworks for crypto-assets not expected until 2023, companies have to navigate the arbitrage highlighted by the ECB in the meantime. This means becoming familiar with the rules introduced at the national level, alongside the growing volume of broader guidance issued by international supervisors.

Crypto AML regulation: where are we?

On August 30 at 4:00 p.m. BST, join experts in blockchain analysis, cryptoassets and law firms to explore the top developers of crypto AML regulation this year – and practical steps to take now .

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Originally posted August 26, 2022, updated August 26, 2022

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