New EU regulations give banks an advantage in regulating tokenized assets, potentially accelerating the development of tokenization in Europe

Legislation passed by the European Union last year created a significant regulatory advantage for banks tokenizing traditional assets, allowing for a more relaxed approach than in most other global jurisdictions. This week, the European Banking Authority (EBA) released final technical standards that broadly follow guidance from the Basel Committee on Banking Supervision (BCBS) and primarily apply to cryptocurrencies. However, the EU legislation reversed this conservative approach to tokenizing traditional assets, explicitly treating them the same as traditional assets, without any additional conditions.

EU banks can handle tokenized securities on any type of blockchain without additional capital requirements, whereas banks elsewhere that follow Basel Committee guidance are subject to risk weights of up to 1,250% when holding similar assets on permissionless networks.

This regulatory divergence also extends to the stablecoin sector, giving Europe a unique advantage in institutional tokenization and the digitization of traditional financial instruments.