Crypto Apocalypse? EU's Wild Insurance Rule!

Well, I’ll be hornswoggled! 🤠 Seems the European Union’s insurance watchdog, bless their cotton socks, has come up with a notion so peculiar it’d make a Mississippi steamboat captain scratch his head. They reckon insurance fellas should hold capital equal to the WHOLE shebang of their crypto holdings. That’s right, every last satoshi! 😲

This newfangled idea, cooked up by the European Insurance and Occupational Pensions Authority (that’s a mouthful!), aims to keep policyholders from getting bamboozled. According to their Technical Advice report to the European Commission on March 27, this here rule would be tougher than a two-dollar steak. Stocks and real estate? They barely need a half-hearted pat on the back, it seems. 🤔

EIOPA, in their infinite wisdom, says a “100% haircut” is “prudent and appropriate” for these crypto-doodads. “Inherent risks and high volatility,” they declare! Land sakes, you’d think they were talking about a herd of wild mustangs instead of digital coins. 😂

They claim this’ll plug a hole between the Capital Requirements Regulation and Markets in Crypto-Assets Regulation (MiCA). Apparently, the EU’s current rulebook for insurers is as empty as a politician’s promise when it comes to crypto. Go figure. 🤷‍♂️

EIOPA served up four options for the European Commission to chew on. First, do absolutely nothing! Second, demand an 80% “stress level” on crypto. Third, crank that up to a full 100%! And fourth, ponder the risks of tokenized assets like a philosopher staring into a muddy puddle. 🤔

These “stress levels,” you see, dictate how much moolah these firms need to stash away to stay afloat. Like a life raft in a sea of volatility. 🌊

EIOPA, bless their hearts, believes option three is the bee’s knees. An 80% stress? “Not sufficiently prudent!” A hundred percent? “More appropriate!” They reckon it aligns with some “transitional treatment of crypto-assets under CRR.” Sounds mighty important, don’t it? 🧐

This 100% stress assumes crypto prices could plummet like a lead balloon – a full 100%! And diversification? Fiddlesticks! Ain’t gonna help, they say. They point out that Bitcoin and Ether, those highfalutin digital currencies, have already taken tumbles of 82% and 91%, respectively. Ouch! 🤕

A 100% capital charge would make crypto look like the black sheep of the asset family. Stocks get a measly 39% to 49%, and real estate? A paltry 25%. Compared to solvency capital requirements laid out in the Commission Delegated Regulation 2015/35. It’s enough to make a fella weep into his whiskey. 🥃

EIOPA chirps that a 100% capital charge for crypto-related insurance folk shouldn’t be “overly burdensome.” And that there wouldn’t be material costs for policyholders. Sure, and pigs might fly! 🐷

“The capital requirements would fully capture the risk of crypto-asset with a positive impact on policyholder protection in case there are material exposures in the future.” Well, ain’t that a mouthful of bureaucratic gobbledygook? 🤪

EIOPA admits that crypto-asset insurance accounts for a measly 655 million euros or 0.0068% of all undertakings in Europe. “Immaterial,” they call it! So why all the fuss, you ask? Good question! 🤔

“At the same time crypto assets are high risk investments which may result in total loss of value,” EIOPA said, explaining why it recommends option three. So, there you have it. Makes perfect sense, don’t it? 🤪

Luxembourg and Sweden could be hit hardest by the proposed rule

Turns out, insurers in Luxembourg and Sweden might be feeling a tad queasy about all this. According to a Q4 2023 report, those two countries account for 69% and 21% of all crypto asset-related exposures among insurance companies. That’s a whole lotta crypto in them there parts! 😬

Ireland, Denmark and Liechtenstein also accounted for 3.4%, 1.4% and 1.2% of the undertakings.

Most of these goings-on are wrapped up in funds, like exchange-traded funds, and held on behalf of unit-linked policyholders, EIOPA noted. Fancy that! 🧐

EIOPA, however, acknowledged that a broader adoption of crypto assets in the future may require a more “differentiated approach.” Well, ain’t that just like kicking the can down the road? 😂

2025-03-28 06:24

Crypto Apocalypse? EU’s Wild Insurance Rule!

Luxembourg and Sweden could be hit hardest by the proposed rule

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