The European Banking Authority (EBA), in collaboration with the European Systemic Risk Board (ESRB) and the Financial Stability Board (FSB), has decided to conduct a joint investigation to assess the connections between traditional banks and non-banking financial institutions, including hedge funds, private equity, and crypto platforms.
In an interview with Financial Times on December 3, EBA Chairman José Manuel Campa emphasized the need to understand the full chain of non-banking financial institutions to gauge the potential spread of a crisis between banking and non-banking financial entities. He stated, “We must do more, and we will. We need to understand the entire underlying chain of non-bank institutions.”
Campa highlighted that the EBA has already evaluated the balance sheet risks of banks to non-banking entities, including loans. He views non-banking entities as a sector with heterogeneous data quality that is difficult to assess.
According to the Financial Stability Board, non-banking entities hold assets worth nearly $218 trillion, accounting for about 46% of total global assets, as opposed to traditional banks, which hold approximately $183 trillion.
In November 2023, the EBA proposed new industry guidelines for Anti-Money Laundering and Counter-Terrorism Financing (AML/CFT) in the crypto sector, focusing on payment service providers and crypto asset service providers (CASPs). The EBA suggested integrating AML/CFT requirements for these entities and ensuring the interoperability of their protocols for seamless information sharing. The EU continues to lead in legal regulations for the crypto markets, aiming to mitigate potential harm to citizens, especially in light of the bankruptcy crises of 2022.