EIOPA proposes 100% stress on crypto assets without diversification

Written by Adam Cadle

24/10/2024

EIOPA has launched a public consultation on its draft technical advice on standard formula capital requirements for crypto assets within the EU’s regulatory framework for insurers.

In response to the European Commission’s Call for Advice, EIOPA analysed EU insurers’ crypto holdings and the risk inherent in such holdings. In light of the findings of this analysis, EIOPA is proposing to introduce a 100% stress on crypto assets without diversification, regardless of their balance sheet treatment and irrespective of whether the exposures are direct or indirect.

As the market for crypto assets is still in its early stages and evolving, EIOPA recommends revisiting the prudential treatment of these assets in the future to determine whether a differentiated treatment would be appropriate.

European insurers’ investments in crypto assets are currently immaterial, with around €655m or 0.0068% of their total investments of €9.632trn allocated to such assets. Reporting data shows that insurers’ crypto investments are typically structured within funds and held on behalf of unit-linked policyholders.

“Nevertheless, the lack of transparency, low liquidity, and extreme price volatility of crypto assets, combined with the potential for broader future adoption and possible losses for policyholders necessitates careful regulatory and supervisory considerations,” EIOPA stated.

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