Crypto Risks Prompt EU Bank Regulator To Probe Non-Bank Links

The European Banking Authority (EBA), the EU agency responsible for overseeing the banking sector, is planning to intensify its investigation of the potential risks posed by non-bank financial institutions (NBFIs), especially those related to cryptocurrencies, the Financial Times reported on Tuesday.

EBA To “Dig Deeper” Into NBFI Links

The EBA, which conducts stress tests on EU banks every two years, is concerned about the possible contagion effects of NBFIs, which hold nearly half of the global financial assets, estimated at $219 trillion. NBFIs include hedge funds, private equity firms, money market funds, and crypto entities.

We should be doing more and we are going to be doing more. We need to have an understanding of the whole underlying chain in NBFIs, José Manuel Campa, EBA chair, told the FT.

José added that the EBA would “dig deeper into the links between banks and other financial firms” and collaborate with other international bodies to assess the impact of a “shadow banking shock” on the financial system.

EBA’s Crypto regulations

The EBA has already taken some measures to address the role of digital currencies in the financial sector, in line with the EU’s new Markets in Crypto Assets (MiCA) regulation, which aims to create a harmonized framework for crypto assets across the bloc.

In November, the EBA published draft rules on liquidity and capital requirements for stablecoin issuers, which are entities that issue digital tokens pegged to fiat currencies or other assets. The rules are intended to ensure that stablecoin issuers have enough reserves to back their tokens and to prevent them from engaging in risky activities.

The EBA has also proposed rules that would require crypto companies to conduct due diligence on their customers and shareholders and to monitor transactions involving private coins or self-hosted wallets, which are seen as potential avenues for money laundering and terrorist financing.

The EBA’s efforts to regulate digital currency entities reflect the growing recognition of the opportunities and challenges posed by the emerging technology, which has attracted both investors and regulators worldwide.

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