EU Watchdog Intensifies Investigation on Banks-Crypto Entity Ties: FT

• European Banking Authority (EBA) to Increase Scrutiny on Cryptocurrency-Related Entities
• EBA to Enhance Predictive Measures for Non-Bank Financial Institutions (NBFIs)
• Deep Dive into Banks' Connections with Other Financial Firms
• NBFIs' Significant Financial Holdings
• EBA's Actions towards Cryptocurrency's Role in Stressed Financial Systems
• Biennial Stress Test on European Lenders

European Banking Authority (EBA) to Increase Scrutiny on Cryptocurrency-Related Entities

EBA to Enhance Predictive Measures for Non-Bank Financial Institutions (NBFIs)

The EBA, known for conducting stress tests on European Union banks, is set to take further actions to foresee the impact of strains in NBFIs, inclusive of entities associated with cryptocurrencies on lenders. This information comes as per reports by the Financial Times.

Deep Dive into Banks' Connections with Other Financial Firms

The rising concern over contagion has prompted the necessity to probe deeper into the relationships between banks and different financial firms. José Manuel Campa, Chair of EBA, shared these views during an interview with the Financial Times. He emphasized on the need for a comprehensive understanding of the entire underlying chain in NBFIs.

NBFIs' Significant Financial Holdings

As per the Financial Times' report, NBFIs control about $219 trillion, which accounts for nearly half of global financial assets.

EBA's Actions towards Cryptocurrency's Role in Stressed Financial Systems

EBA has already initiated measures to confront the potential stress that crypto may cause in the financial system. In November, it revealed draft rules on liquidity and capital essentials for stablecoin issuers, in compliance with the EU's new Markets in Crypto Assets (MiCA) regulation. The EBA has also suggested rules that would require people owning more than 10% stake in a crypto company to be checked for convictions or sanctions. It has also advised crypto companies to keep an eye on customers using privacy coins or self-hosted wallets to identify possible money laundering.

Biennial Stress Test on European Lenders

Biennial stress tests are conducted by the EBA on European lenders in addition to assessments of the banks' balance sheet exposures to non-banks. The most recent initiative would involve collaboration with the European Systemic Risk Board and Financial Stability Board to comprehend the potential repercussions of a shadow banking shock on the larger system.

Edited by Jonathan Stoker