The European Insurance and Occupational Pensions Authority (EIOPA) has proposed a radical requirement for insurers to cover 100% of the value of their crypto-assets, signaling a clear message to the markets.
A Bulwark Against Crypto Volatility
EIOPA has put forward a proposal that requires a capital requirement equivalent to 100% of the value of the crypto-assets recorded on insurers' balance sheets. This new crypto rule far exceeds current standards: stocks require coverage between 39% and 49%, while real estate, often considered risky, is limited to 25%. Past crashes, such as an 82% drop for Bitcoin and 91% for Ethereum, justify these strict measures. The measure reflects a desire to align regulation with the unique characteristics of cryptocurrencies, including their extreme volatility and unpredictable price movements.
Why Strike So Hard Now?
Currently, European insurers' exposure to crypto-assets remains marginal, with €655 million committed out of the industry's €9.6 trillion assets. Nevertheless, EIOPA anticipates future risks and aims to lock down before cryptocurrencies massively invade portfolios. Two countries in Europe concentrate most of these exposures: Luxembourg (69%) and Sweden (21%).
Discussions and Future Decisions
EIOPA opens the dialogue by launching a public consultation until June 25, 2025. However, the agency does not mask its intentions – to fill a regulatory gap and integrate crypto-assets fully into the European prudential framework. Although still subject to debate, EIOPA's recommendation sets a clear course, and other regulators may soon follow their path or take the opposite stance.
EIOPA's decision to establish strict cryptocurrency measures clearly indicates Europe's choice of caution in unpredictable crypto markets. Other regulators may follow.
