The European Banking Authority (EBA) Proposes Testing to Assess Impact of Non-Bank Financial Institutions
The European Banking Authority (EBA) is considering conducting tests to determine whether tensions in non-bank financial institutions (NBFIs), including cryptocurrency-related entities, will affect lenders. EBA chairman José Manuel Campa has expressed concern about the need to strengthen the connections between banks and other financial firms. He emphasized the importance of understanding the entire underlying chain in NBFIs.
EBA Takes Steps to Address Cryptocurrency’s Role in Financial Stress
In an effort to address the potential impact of cryptocurrencies on the financial system, the EBA has already taken action. Last November, it published draft rules on liquidity and capital requirements for stablecoin issuers under the EU’s new Markets in Crypto-Assets (MiCA) regulation. Additionally, the EBA has proposed rules that require screening individuals with more than a 10% stake in a crypto company for convictions or sanctions. It also directs crypto companies to monitor customers using privacy coins or self-hosted wallets to detect potential money laundering.
Initiatives Linked to Adoption of MiCA Regulation
The EBA’s latest initiatives are closely tied to the adoption of MiCA last spring. The bill received unanimous support from all 27 EU member countries. It introduces institutional regulation for cryptocurrency issuance and establishes a consistent legal framework for crypto companies within the European Union. Work on a package of regulatory acts began in 2020, and while the law will officially come into force 20 days after publication, cryptocurrency exchange rules will only take effect in December 2024.
Hot Take: EBA Aims to Strengthen Oversight and Mitigate Risks
The EBA’s proposal to test the impact of NBFIs, including cryptocurrency-related entities, on lenders demonstrates its commitment to strengthening oversight and mitigating potential risks in the financial system. By deepening the connections between banks and other financial firms, the EBA aims to gain a comprehensive understanding of the underlying chain in NBFIs. These initiatives, alongside the draft rules on stablecoin issuers and the screening requirements for crypto companies, reflect the EBA’s proactive approach to addressing the challenges posed by cryptocurrencies. With the adoption of MiCA and the upcoming implementation of regulatory measures, the EU is taking significant steps towards establishing a robust and regulated framework for cryptocurrencies.
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