The European Union’s insurance watchdog has proposed a stringent new rule that would require insurance firms to hold capital equal to the full value of their crypto holdings. 

The European Insurance and Occupational Pensions Authority (EIOPA) outlined the recommendation in a Technical Advice report to the European Commission on March 27. The proposal suggests that insurers should apply a 100% capital charge on crypto investments, effectively treating them as high-risk assets.‍

Stricter Than Other Asset Classes

If adopted, the policy would impose a much stricter standard than those applied to traditional assets like stocks, bonds, and real estate, which do not require full capital backing. By enforcing a one-to-one capital reserve requirement, regulators aim to ensure that insurers remain financially stable even if the crypto market experiences severe downturns.

EIOPA considered several policy options before landing on this recommendation. These included maintaining the current approach, an 80% capital requirement, or treating tokenized assets based on their underlying risks. The authority ultimately opted for the strictest approach, citing crypto’s extreme price volatility and regulatory uncertainty as key concerns.‍

Impact on the Insurance Industry

The proposed measure, if implemented, could discourage insurers from investing in digital assets, potentially reducing the presence of crypto-related financial products in the European market. Some industry stakeholders argue that such a stringent requirement overstates crypto risks compared to other asset classes.

The recommendation is part of the EU’s broader regulatory effort under Solvency II, a framework designed to ensure that insurers maintain adequate capital to withstand financial shocks. The European Commission is expected to review the proposal and decide on potential legislative action in the coming months.

With increasing regulatory scrutiny over digital assets worldwide, this move underscores Europe’s cautious stance on crypto investments—balancing financial innovation with consumer protection.