Crypto In Crosshairs As EU Regulators Deepens Probe On Banks-NBFIs Links

With the crypto industry awaiting Markets in Crypto Assets Regulation (MiCA) and crypto exchanges and companies expanding to the EU region, a new probe by EU regulators may hinder crypto growth in the region.

European Banking Authority (EBA) Chair José Manuel Campa said regulators would investigate funding and other links between sectors, bringing crypto in the crosshairs. He expressed concerns on crypto being out of regulators’ reach.

EU Investigates NBFIs Crypto Exposure Risks To Banking Industry

EU regulators will heighten scrutiny on links between banks and other financial firms such as hedge funds, private capital firms, and cryptocurrency groups on concerns over potential contagion to banks, reported FT on Jan 3.

“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,” said José Manuel Campa, Chair of the European Banking Authority.

Financial Stability Board data shows NBFIs hold almost half of the world’s financial assets worth around $218 trillion. Campa asserts this makes it imperative to probe risks posed by non-bank financial institutions (NBFIs) to banks, with crypto out of regulators’ reach.

The EBA would work with the European Systemic Risk Board and Financial Stability Board to develop a better understanding of how shadow banking shock affects the wider financial system. Campa said the EBA had already been carrying out assessments of the banks’ balance sheet exposures to non-banks, including loans.

Also Read: Blackrock, JPMorgan Prepare For Imminent Spot Bitcoin ETF Approval

Campa Targets Indirect Links To Banks

Indirect links include whether banks could be impacted by a sharp fall in the value of assets such as treasuries or real estate held by NBFIs.

In November, European Central Bank’s chief supervisor Andrea Enria warned that there is a loophole in EU rules to protect the financial system from risks stemming from cryptocurrencies. The loophole that allows banks to circumvent some safeguards should be fixed urgently.

Also Read: Spot Bitcoin ETF Approval Has 75% Probability of Sell-the-News Event, K33 Research