In anticipation of the European Union's soon-to-be-implemented Markets in Crypto Assets (MiCA) rules, there has been increased activity from cryptocurrency exchanges looking to conquer the EU market. However, this has raised concerns about the stability of the European banking system.
The head of the European Banking Authority (EBA), Jose Manuel Campa, made a statement on the need to strengthen regulatory control over banks' financing of various sectors, including the crypto industry.
European regulators fear global risks to the traditional banking industry and intend to monitor links between banks and hedge funds, cryptocurrencies, and private equity, according to CoinGape.
The EBA chairman urged: "We need to do more. We will monitor all the underlying chains in NBFIs."
However, experts believe that the result of increased scrutiny will be a threat to the development of the EU cryptocurrency environment.
According to the Financial Stability Board, non-bank financial institutions (NBFIs) hold almost 50% of the world's financial assets, which amount to more than $218 trillion. Therefore, José Manuel Campa emphasizes the need to study and monitor the risks arising from NBFIs' links with banks. In his opinion, cryptocurrencies are currently beyond the reach of regulators.
European regulators – the EBA, the European Systemic Risk Board, and the Financial Stability Board – intend to monitor how shadow banking risks affect the traditional financial system. Campa sees this as a priority, and the department has already assessed banks' balance sheet risks due to links with non-bank organizations, including lending activities.
Campa warned of the need to examine banks' indirect links: what impact a sharp drop in the value of assets held by NBFIs, such as cryptocurrencies, treasuries, or real estate, could have on banks' stability.
The increased attention from regulators is due to the dramatic increase in the presence of cryptocurrencies in the EU market. Even earlier, in November, European Central Bank (ECB) chief supervisor Andrea Enria, analyzing the impact of MiCA, stressed that the rules include a loophole for the financial system related to cryptocurrencies. This feature allows banks to circumvent some security measures, which is why it is important to address it urgently.
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