The upcoming Markets in Crypto Assets Regulation (MiCA) and the expansion of crypto exchanges and companies into the EU region have created anticipation in the crypto industry.
However, a recent investigation by EU regulators has the potential to impede the growth of cryptocurrencies in the region. The European Banking Authority (EBA) has expressed its intention to scrutinize the funding and connections between various sectors, putting crypto in the spotlight.
Specifically, EU regulators will focus on the links between banks and other financial entities like hedge funds, private capital firms, and cryptocurrency groups.
This investigation aims to address concerns about the potential risks these non-bank financial institutions (NBFIs) may pose to banks, which currently fall beyond the reach of regulatory oversight for cryptocurrencies.
The Financial Stability Board has reported that NBFIs hold close to half of the world's financial assets, amounting to approximately $218 trillion.
This significant figure underscores the urgency of examining the risks associated with NBFIs, as their impact on banks can have far-reaching consequences.
José Manuel Campa, Chair of the European Banking Authority, stated that a comprehensive understanding of the entire underlying chain in NBFIs is necessary and that their assessments would encompass various aspects, including loans and balance sheet exposures of banks to non-banks.
To gain a better understanding of how shocks in the shadow banking system affect the wider financial system, the EBA will collaborate with the European Systemic Risk Board and the Financial Stability Board.
This joint effort will facilitate the development of a more comprehensive understanding of the risks posed by NBFIs and their potential impact on banks, with a particular focus on the crypto industry.
The European Central Bank (ECB) has expressed concern over the increasing collaboration between the crypto industry, banks, and asset managers, stating that it could pose a threat to financial stability. This signals a growing focus from central banks and governments on tightening regulations within the market.
In its latest financial stability review published on Tuesday, the ECB revealed that it had conducted a thorough examination of crypto asset leverage and crypto lending.
The results indicated that these activities were growing in complexity and risk while also becoming more intertwined with traditional financial institutions.
This serves as the ECB's first official warning on the matter, echoing similar concerns voiced by authorities in the US and UK following recent failures in the crypto market.
While bitcoin and other cryptocurrencies have been around for a while now, the regulatory environment surrounding these assets remains uncertain. However, in the European Union, that is about to change. In April 2023, the European Parliament approved a comprehensive regulatory framework called the Markets in Crypto Assets (MiCA) rules.
MiCA is designed to establish consistent standards for digital asset companies, bringing them in line with traditional financial institutions. To comply with this new regulation, institutions will need to undertake specific fundamental measures. The implementation of MiCA across the EU is expected by late 2024.
Disclaimer: Voice of Crypto aims to deliver accurate and up-to-date information, but it will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.