The European Banking Authority (EBA) is set to conduct an investigation into the connections between traditional banking institutions and non-bank financial institutions (NBFIs). This initiative will involve a comprehensive assessment of hedge funds, private equity firms, and cryptocurrency platforms by EU banking regulators, the European Systemic Risk Board (ESRB), and the Financial Stability Board (FSB).
José Manuel Campa, the President of the EBA, announced this decision in an interview with the Financial Times on January 3. Campa emphasized the importance of understanding the relationships and potential risks that could arise in stress situations between banks and NBFIs, referring to the latter as a "lower chain of non-bank financial institutions." He asserted the need for more in-depth analysis in this area, declaring, "We should do more, and we will do more."
In his discussion, Campa disclosed that the EBA has already begun examining the extent of banks' exposure to the balance sheets of non-bank entities, which includes various forms of loans. He described the non-bank financial sector as somewhat opaque, noting the uneven quality and availability of data within this sector. According to the FSB, NBFIs currently hold assets nearing $218 trillion, which accounts for approximately 46% of the total global assets. This is in contrast to traditional banks, which hold around $183 trillion in assets.
In a significant move in November 2023, the EBA put forward new guidelines aimed at enhancing anti-money laundering (AML) and combating the financing of terrorism (CFT) within the crypto industry. These proposed guidelines are particularly focused on integrating the AML/CFT standards for payment service providers with those applicable to crypto asset service providers (CASPs).
The EBA’s recommendations include a call for CASPs to ensure seamless and interoperable transmission of information. This would involve improving the interoperability of their protocols, a move aimed at bolstering the effectiveness of AML/CFT measures within the rapidly evolving cryptocurrency sector.
