EU supervisory authority calls for 100% capital protection against crypto systems from insurance companies
- The EU supervisory authority EIOPA wants 100% capital protection of insurance companies for insurance companies.
- The investment behavior of insurers in the EU is likely to change to the disadvantage of crypto if the EIOPA recommendation should be implemented 1: 1.
Die European supervisory authority for insurance and company pension schemes (EIOPA) wants to Insurance company request to keep funds in the amount of their crypto investments. In any case, this is your recommendation to the European Commission. Because of the unpredictable volatility and the high risks of crypto systems, the EIOPA is forced to take this step. The protection of the policyholder is a priority in the EIOPA, which is why the capital reserve should be able to cover fluctuations in the cryptom market 100%.
The proposed measure would introduce capital requirements that go beyond the existing conditions for traditional assets, including stocks and real estate. The recommendation goes to persistent regulatory concerns regarding the EU-Standards back protect the insurers who work with digital assets.
EIOPA proposes 100% investment request
The EIOPA recommends in its technical Advice message from March 27th that all engagements in crypto assets should be taxed 100 % of the capital value. The authority supports this requirement because it guarantees the protection of policyholder from volatile digital currencies. EIOPA points out that the existing regulatory system is not able to adequately protect against the risks of crypto-assets and therefore calls for a 100%capital request. According to the proposal, greater protective measures are required for crypto-assets, since higher requirements apply to you than for shares with fees between 39 % and 49 % and for real estate with 25 %.
Eiopa showed four regulatory options in her document. The first maintains the current regulations, while the second demands a capital request of 80%. The third party requires insurers to keep capital reserves of 100% of the crypto value value, since it is related to the transitional measures defined in the Capital Requirements Regulation (CRR). The fourth regulatory approach evaluates extensive risks that arise from tokenized assets. EIOPA emphasizes for the third regulatory plan, since the authority is of the opinion that a stress threshold of 80% cannot sufficiently reduce the volatility of crypto prices.
Consequences for the insurance sector
The acceptance of the European Commission’s proposal would increase the capital requirements for insurers who hold crypto assets and thus reduce market interest for digital assets. Some insurers will change their investment strategies and maintain the regulations, while others will completely leave the cryptocurrency market. This measure could serve to trigger similar regulatory approaches in international legal systems because it sets new standards for supervision on investments in digital assets for the insurance sector.
EIOPA considers the 100%investment request as a reasonable precaution and not as an ineffective restriction. According to EIOPA, the financial stability would increase thanks to the proposed regulation, since it would protect the funds of the policyholder from the volatility of the cryptocurrency market. The requirement is used if the regulatory authorities assume that the prices of cryptocurrencies can theoretically fully fall to zero and that a diversification of assets via several digital assets cannot protect against such a loss.
Due to the aggressive enforcement of capital buffers, EIOPA wants to establish financial security measures in the industry. The upcoming EU decision on this proposal will have a significant impact on how insurance companies and cryptoma marketers interact worldwide.
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