EIOPA Proposes Full Capital Buffer for Crypto Assets
Key Takeaways
The European insurance regulator EIOPA has proposed that insurers dealing with crypto assets should maintain 100% capital coverage. This is justified by the high volatility of digital assets such as Bitcoin and Ethereum. However, the proposal has faced criticism – including from stablecoin issuer Circle, which is calling for a more differentiated approach.
What EIOPA is Proposing
The European Insurance and Occupational Pensions Authority (EIOPA) proposes that insurance companies must maintain full 1:1 capital coverage for all crypto assets held. This means that for every euro in crypto assets, there must be one euro in equity capital.
According to EIOPA, this measure is intended to close an existing regulatory gap. The MiCA framework (Markets in Crypto-Assets), which will apply EU-wide starting in 2024, regulates the handling of crypto assets but does not currently include insurers explicitly.
Rationale: Volatility as the Main Risk
EIOPA points to the extreme price fluctuations of cryptocurrencies. Bitcoin and Ethereum, for example, have experienced losses of up to 82% and 91%, respectively. Therefore, the authority considers it appropriate to assume a total loss scenario – a 100% stress factor. This conservative approach is intended to safeguard the financial stability of insurers.
Most Affected: Luxembourg and Sweden
The proposal would not have the same impact across all EU countries. Luxembourg and Sweden would be particularly affected, as over 90% of the crypto-focused insurance companies are based there. Implementing EIOPA’s recommendation would require significant adjustments in these countries.
Circle Calls for Differentiated Risk Assessment
Stablecoin provider Circle has criticized the proposal. The company argues that not all cryptocurrencies carry the same risk. Stablecoins like USDC, which are backed by real-world assets, pose significantly lower risks than volatile coins like Bitcoin. Circle is therefore calling for a differentiated risk assessment instead of a blanket 100% approach.
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Outlook: Adjustments Possible with Broader Crypto Adoption
EIOPA itself acknowledges that the proposal is not set in stone. If the use of crypto assets in the insurance sector continues to grow, a more flexible model may become necessary. The current recommendation is primarily intended as a transitional solution until more data and experience become available.
Our Assessment
EIOPA’s proposal shows that crypto asset regulation in the EU is gaining momentum. For you as a user or investor, this means more security but also stricter requirements for providers. The demand for 100% capital coverage is understandable from a regulatory perspective but could hinder smaller insurers or new market entrants. A risk-based approach, as suggested by Circle, seems more sustainable in the long term – provided that the risks can be assessed transparently and reliably.
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