EIOPA demands radical 100% capital protection for crypto systems-a rethink in the European insurance sector is about

<p> <strong> EIOPA demands radical 100% capital protection for crypto systems-a rethink in the European insurance sector is about </strong> </p>

eiopa recommends 100% investment requirement for crypto systems from insurance companies

The European supervisory authority for insurance and company pension scheme (EIOPA) has given a drastic recommendation that could have a significant impact on the investment behavior of insurance companies in the EU. According to this, a capital coverage of 100% is to be required for crypto systems. This measure is a reaction to the unpredictable volatility and the high risks associated with crypto systems and should focus on the protection of the policyholder.

100% capital protection required

In its Technical Advice report of March 27, EIOPA recommends that all engagements in crypto assets should be taxed 100 % of the capital value. The authority emphasizes that the existing regulatory framework is not sufficient to manage the risks of digital assets. Therefore, a complete investment requirement is considered necessary. In comparison, the requirements for traditional assets such as stocks and real estate are significantly lower - with 39 to 49% for stocks and 25% for real estate.

The EIOPA presents four regulatory options, whereby the third option - the requirement of capital reserves of 100% of the crypto value - is considered the most suitable. This is particularly relevant, since a lower threshold of 80% is not considered sufficient to reduce the volatility of the cryptocurrency -related prices.

effects on the insurance sector

If the European Commission follows the EIOPA proposal, this could lead to a significant decline in the interests of the market in digital assets. Insurance companies would be forced to re-evaluate their investment strategies, with some possibly completely leaving the crypto market. These changes could pave the way for similar regulatory approaches in other international legal systems and set new standards for supervision on investments in digital assets.

The EIOPA does not consider the 100%capital request as an unnecessary restriction, but as a necessary precaution to increase financial stability. This regulation would help to protect the policyholder's funds from the risks and faults of the crypto market. It is possible that the prices of cryptocurrencies could theoretically fall to zero, and the required diversification via digital assets does not offer sufficient protection against such a loss.

FAZIT

By enforcing capital buffers, EIOPA wants to establish strong financial security in the insurance sector. The upcoming decision of the EU on this proposal will probably have far-reaching effects in the way in which insurance companies and crypto markets interact worldwide. Developments in this area should be carefully pursued by investors and the companies concerned.