EU Regulators to Examine Interconnection between Banks, Financial Institutions, and Crypto Firms

Examination by EU Regulators

The European Banking Authority (EBA) Chair, Jose Manuel Campa, explained during a recent speech that regulators need to have a better understanding of the whole underlying chain in non-bank financial institutions (NBFIs) due to their impressive holdings of financial assets worth around $218 trillion.

To get further insight into the ways that shadow banking influences the larger financial system, the European Bank for Analysis (EBA) will work in tandem with the Financial Stability Board and the European Systemic Risk Board.

The investigation follows warnings from Andrea Enria, the European Central Bank’s chief supervisor, about bypassing certain safeguards related to cryptocurrencies.

Similarity between Banks and NBFIs

The EBA’s investigation will focus on indirect links between banks and NBFIs, such as loans and assets held by NBFIs, that could impact banks in the event of a sharp fall in value. These connections have come under increased scrutiny due to concerns over potential contagion to banks from NBFIs’ exposure to cryptocurrencies.

The EBA’s investigation will aim to develop a better interpretation of how these connections affect the wider financial system and identify any potential risks that need to be managed.

Target Crypto Firms

This investigation by EBA will also include cryptocurrency firms, which have experienced notable growth in recent years. As more crypto exchanges and companies expand into the EU region, regulators are increasingly scrutinizing their activities and looking for ways to manage the risk associated with them.

To conclude, this investigation by EBA is likely to have some serious implications for the future of the cryptocurrency industry in the European Union.