The European Insurance and Occupational Pensions Authority (EIOPA) has proposed a sweeping new regulation that would require insurance firms to fully back their cryptocurrency holdings with capital, signaling a shift in how regulators assess the risk of digital assets in the financial system.
The proposal, unveiled in a recent consultation paper, outlines four regulatory approaches, with EIOPA favoring the strictest option—requiring insurers to assume a total loss on all crypto holdings. This recommendation reflects the regulator’s view that digital assets carry excessive volatility and inherent risks, making them incompatible with the lighter capital treatment applied to traditional asset classes like equities and real estate.
A Stricter Approach for Digital Assets
EIOPA’s preferred approach aims to impose a 100% capital charge on cryptocurrency holdings, essentially treating them as potential total losses in a firm’s balance sheet.
In comparison, traditional equities fall under capital charges ranging from 39% to 49%, depending on market volatility and geographic location. Real estate investments carry a lighter charge of 25% due to their perceived lower risk and relatively stable valuation.
By contrast, EIOPA wants crypto treated as the highest-risk category, surpassing even the riskiest stocks or derivatives. The agency stated that an 80% stress level, which had been previously considered, would not represent a “sufficiently prudent” stance toward crypto-related exposure.
This proposal seeks to harmonize standards between the Capital Requirements Regulation (CRR)—which governs banks—and the Markets in Crypto-Assets Regulation (MiCA), the EU’s comprehensive digital asset framework set to take effect soon.
Why EIOPA Wants Stricter Rules
EIOPA raised concerns that crypto volatility, combined with operational and cybersecurity risks, could expose insurers to unexpected capital shocks. The regulator cited the 2022 crypto market crash, collapses like FTX, and persistent valuation instability as reasons to fortify capital buffers.
“Insurers must prepare for potential market failures in digital assets,” the agency said. “Capital frameworks must reflect the true nature of crypto risks rather than accommodate speculative optimism.”
Though cryptocurrency holdings represent only 0.0068% of total insurance-related assets in the EU, EIOPA anticipates a gradual increase as insurers seek exposure to tokenized assets and blockchain-based investments.
By acting now, the agency hopes to prevent systemic vulnerabilities before crypto grows into a major asset class within the insurance sector.
Countries Most Affected
The proposed regulation will disproportionately impact Luxembourg and Sweden, which host the highest number of insurance firms with crypto-related operations.
Both countries offer regulatory-friendly environments that have attracted insurers experimenting with crypto-linked investment products, blockchain-based policy issuance, and digital asset custody services.
If EIOPA’s proposal takes effect, these countries may see reduced participation from insurers in crypto markets, especially smaller firms that cannot afford to set aside 100% capital for each crypto holding.
This could lead to market rebalancing, where only larger insurers with stronger reserves continue to participate in blockchain-based financial innovations.
Bridging the Regulatory Gap
The proposed capital rule also aims to bridge a longstanding gap between banking regulations (CRR) and crypto-specific laws (MiCA). While CRR imposes strict capital requirements on banks, many insurance firms remain in a grey zone when it comes to crypto exposure, often reporting such investments under “other assets” or alternative asset categories.
MiCA, expected to take effect in 2024–25, will require enhanced transparency, licensing, and risk disclosures for crypto businesses across Europe. EIOPA’s initiative complements MiCA by addressing institutional exposure from the insurer’s side.
By aligning these regulatory frameworks, the EU intends to create a unified risk posture toward digital assets—protecting policyholders and market stability alike.
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Industry Response: Mixed Sentiment
The insurance industry has responded with mixed reactions. Some large players welcomed the clarity, acknowledging that risk-adjusted capital allocation must reflect real-world volatility.
However, others criticized the “overly conservative” stance, arguing that not all digital assets carry equal risk. For instance, regulated stablecoins, tokenized government bonds, and blockchain-based mutual funds may warrant differentiated treatment.
Several insurance associations in Europe are expected to lobby for more nuanced regulations, suggesting a tiered capital framework based on the asset’s volatility, use case, and issuer credibility.
If EIOPA sticks to its total-loss assumption, many insurers may completely exit crypto markets, fearing capital inefficiency and reduced return on equity.
EIOPA’s Proposals: A Breakdown of the Four Options
EIOPA laid out four approaches, each with varying degrees of conservatism:
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Option 1: Treat crypto as completely illiquid, requiring a 100% capital charge.
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Option 2: Apply an 80% stress test under Solvency II, modeling volatility without assuming total loss.
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Option 3: Align crypto risks with high-risk equities, using the upper end of capital charges (~49%).
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Option 4: Create a new category under Solvency II specifically for digital assets, offering case-by-case treatment.
Despite presenting these options, EIOPA clearly stated its preference for Option 1, citing prudence and long-term systemic risk control.
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Broader Implications for Crypto and Insurance
If implemented, this policy could serve as a template for global regulators, especially in regions where Solvency II equivalence applies.
The move may also influence institutional interest in crypto markets, causing capital to shift toward better-regulated asset classes like tokenized real estate or digital green bonds.
At the same time, crypto-native firms could develop insurance-linked products that reduce capital burdens—such as smart contract-based risk pools or decentralized reinsurance protocols.
Moreover, the proposed rules underscore how financial regulation is adapting to blockchain, forcing digital asset ecosystems to align with real-world economic risks.
The Road Ahead
EIOPA has opened a consultation window for stakeholders to submit feedback. The final framework may change depending on input from insurers, crypto industry leaders, and financial think tanks.
European lawmakers and the European Commission will eventually decide whether to integrate the proposal into formal regulation. The timeline remains uncertain, but experts anticipate a decision within the next 12 to 18 months.
Final Thoughts
EIOPA’s proposed rule signals a new chapter in Europe’s crypto regulation journey. By demanding full capital backing for cryptocurrency investments, the agency aims to protect the financial system from emerging risks—before they become systemic.
Whether this triggers an exodus from crypto by insurance firms or ushers in a new wave of risk-conscious innovation, one thing is clear: digital assets can no longer live outside the capital frameworks that govern the rest of finance.
As MiCA implementation nears and financial institutions deepen their digital strategies, regulatory clarity, capital discipline, and technological adaptation will shape the next decade of crypto-insurance convergence.
