💥AB Insurers and Capital Charges on Crypto Assets
Insurance companies within the European Union will continue to have limited exposure to crypto assets if the proposed 100% capital charge under Solvency II (S2) is implemented. The European Insurance and Occupational Pensions Authority (EIOPA) recommended this charge as part of a comprehensive review of how crypto assets should be handled under the insurance regulatory framework. This recommendation aims to address the risks and volatility associated with crypto assets.
This recommendation, made at the request of the European Commission, aims to reflect the price fluctuations, operational risks, and the current lack of established regulatory oversight of crypto assets. EIOPA proposes that these assets be subject to maximum capital requirements under the S2 standard formula. Currently, crypto assets are not clearly defined under existing S2 rules, resulting in their treatment as intangible assets or Type 2 equities or unlisted investments in unregulated markets in the EEA or OECD.
EIOPA's proposal aims to provide a specific approach for crypto assets, making the insurance sector more aligned with regulatory developments in banking and financial markets. The proposed 100% capital charge will apply to both direct and indirect risks, including investments made in companies engaged in crypto-related activities or those holding crypto assets on their balance sheets. Under the proposal, crypto assets will be placed in the intangible assets module of the S2 standard formula, meaning that hedging strategies will not be recognized and the entire gross position will be subject to the capital charge.
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