EU Authorities Launch Inquiry into Banks’ Cryptocurrency Exposure

The European Banking Authority (EBA) is set to conduct an investigation into the interconnectedness of traditional banks with non-bank financial institutions (NBFIs). This move involves collaboration with the European Union’s banking regulator, the European Systemic Risk Board (ESRB), and the Financial Stability Board (FSB), focusing on assessing hedge funds, private equity firms, and cryptocurrency platforms.

EU Authorities Launch Inquiry into Banks’ Cryptocurrency Exposure

José Manuel Campa, the chair of the EBA, announced this intention in a January 3 interview with the Financial Times. Campa emphasizes the need to trace the entire “underlying chain in NBFIs” to comprehend the potential contagion between banking and non-banking financial institutions during stressful situations. He stated, “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.”

Campa revealed that the EBA had already evaluated banks’ balance sheet exposures to non-banks, including loans. He considers NBFIs to be an “obscure sector” with data of “not-homogeneous” quality. According to FSB estimates, NBFIs hold assets valued at approximately $218 trillion, constituting around 46% of total global assets. In comparison, traditional banks hold approximately $183 trillion.

European Union Regulators to Probe Banks’ Cryptocurrency Exposure

In November 2023, the EBA proposed new industry guidelines for Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) in the crypto sector. These guidelines include merging AML/CFT criteria for payment service providers and crypto asset service providers (CASPs). Additionally, the EBA suggested requiring CASPs to enhance the interoperability of their protocols to “enable the transmission of information in a seamless and interoperable manner.”