The European Occupational Insurance and Pensions Authority (EIOPA) has suggested that there is a new list that requires insurance companies to maintain the equivalent capital of the full value of encrypted currency collectors.
Recommendation, listed in technical advice a report To the European Commission on March 27, it reflects increasing concern about the volatility and risks associated with digital assets.
Politics recommendations and possible effects
Unlike traditional assets such as stocks or real estate, which require insurance companies to keep only partial capital reserves against their exposure, Crypto Holdings is 100 % capital.
EIOPA stated that this conservative approach is justified by the high fluctuations of assets such as Bitcoin and Ethereum, which has already seen a decrease in prices to more than 60 %, respectively.
The proposal aims to fill the “organizational gap” that is currently between the regulation of capital requirements (CR) and markets in regulating encrypted assets (MICA), none of them comprehensively treat the risk of encryption assets for insurance companies.
In its report, Eiopa provided four political options for the European Commission for consideration. The first option did not suggest any organizational change, while the second and third “stress levels” of 80 % and 100 % on the assets on the encryption assets, indicating that the percentage of capital insurance companies should be carried to cover possible losses.
The fourth option recommended that the organizers also evaluate the broader risks posed by the distinctive assets. EIOPA acknowledged the third option, stressing that the level of stress by 100 % will be better in line with transitional treatments under the COR and more accurately reflects the negative risks of encryption.
According to EIOPA, this approach ensures the protection of the strong document holder without incurring the excessive costs of insurance companies, given that encryption biases currently represent only 0.0068 % of all insurance undertaking in the European Union.
Data from Q4 2023 revealed that the insurance companies in Luxembourg and Sweden carry the majority of exposure to encryption, representing 69 % and 21 %, respectively. Other countries with smaller but prominent Ireland (3.4 %), Denmark (1.4 %), and Liechtenstein (1.2 %) include.
Most of these exposure are organized within the investment vehicles such as the boxes circulating on the Stock Exchange (ETFS) and are kept on behalf of the documents related to the unit.
Expectations and organizational context
Eiopa noted that despite the inner size of current encryption containers, future adoption by insurance companies may require a more accurate regulatory approach.
While digital assets acquire traction, especially in investment products related to the account holders of the document, their inherent fluctuations offer unique risks that are different from traditional asset categories.
The European Union's continuous implementation of MICA is expected to provide clearer instructions for the encryption sector as a whole, but Eiopa's proposal indicates that the priorities of insurance guarantees will also be determined.
The organizer emphasized that capital requirements should not be seen by 100 % as excessively restricted, especially given the current low levels of encryption. Instead, the recommendation is seen as a preventive measure to ensure sheet and protect document holders in the event of market trauma.
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