ECB issues crypto license guidance for banking sector
The European Central Bank (ECB) has issued a new statement on the licensing of crypto-asset activities, reinforcing the commitment of Europe’s legislators and regulators to harmonize regulations across the continent. The ECB highlights that the markets for cryptoassets are “developing rapidly”. As the body responsible for banking authorizations and European banking supervision, it wants to ensure that banks engage in the crypto space “safely and soundly.”
The ECB argued that current national rules differ significantly: “In Germany, certain crypto activities are subject to a banking license requirement, and to date several banks have requested permission to carry out these licensed activities. It is in this context that the ECB is taking steps to harmonize the assessment of license requests.”
When considering license requests related to activities and services for cryptoassets, the ECB will pay “special attention” to:
- Business models: How does the proposed activity match the institution’s overall activity and risk profile?
- Internal management: Do the institution’s policies and procedures identify and assess risks unique to cryptoassets?
- Appropriate and correct assessments: Do the banks have the right level of knowledge and experience for the crypto business they are entering? Are senior IT managers and risk managers in place to ensure appropriate security?
In its statement, the ECB also puts the spotlight on special types of risk associated with crypto-assets. These include:
- Cryptographic key theft
- Compromises the credentials
- Technological vulnerabilities related to outsourcing to third-party suppliers
- The need for appropriate governance to account for a bank’s AML/CFT risk profile
The Basel Committee for Banking Supervision is conducting ongoing work on the proper treatment of crypto-asset exposures, including whether there is a need for specific liquidity requirements. Companies can contribute to their second public consultation before 30 September 2022.
Crypto asset tracking
The ECB’s intervention comes months after the European Parliament outlined legislation to ensure the traceability of crypto-assets, as part of a wider package of AML reforms, including Markets in Crypto-assets (MiCA) rules. Introduced in 2020, MiCA provides a robust legal framework for the development of crypto-asset markets in the EU. It has been widely welcomed throughout the industry due to its single license offering, as well as its ability to increase corporate credibility and promote the adoption of conventional banks. The ECB’s involvement in crypto harmonization for banks reflects the importance of this benefit.
Ownership, control and liquidity in relation to crypto assets are important new areas of focus for regulators across Europe. In the UK, the Financial Conduct Authority (FCA) has issued new rules on the ownership of crypto-asset firms. From 11 August 2022, any person acquiring 25% or more control of an FCA-registered cryptoasset firm must receive FCA approval in advance. The regulator notes that it is now a “criminal act” to acquire ownership without prior approval.
Next step
With harmonized frameworks for cryptoassets not expected until 2023, businesses will have to navigate the arbitrage highlighted by the ECB in the meantime. This means becoming familiar with rules introduced at national level, along with the growing volume of wider guidance issued by international regulators.
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Originally published August 26, 2022, updated August 26, 2022
