The European Banking Authority (EBA) has announced additional measures to assess the potential impact of strains in non-bank financial institutions (NBFIs), including those related to cryptocurrency entities.

The move is prompted by concerns over contagion and aims to delve deeper into the interconnectedness between banks and other financial entities.

The EBA, responsible for conducting stress tests on European Union banks, recognizes the significance of comprehending the links between traditional banks and NBFIs, given the potential risks associated with their interconnected operations.

Regulating Crypto in Europe

To address the evolving role of cryptocurrencies in financial systems, the EBA has already taken specific actions.

In November, it published draft rules pertaining to liquidity and capital requirements for stablecoin issuers, aligning with the EU's new Markets in Crypto Assets (MiCA) regulation.

In December, the regulatory body also conducted a public consultation to determine best compliance Guidelines between payment service providers, crypto-asset service providers (CASPs), and supervisors.

Additionally, the EBA proposed rules requiring scrutiny of individuals holding over 10% stakes in crypto companies for convictions or sanctions.

It also urged crypto companies to monitor customers using privacy coins or self-hosted wallets to identify potential money laundering activities.

The EBA conducts biennial stress tests on European lenders and evaluates banks' balance sheet exposures to non-bank entities.

The latest initiative involves collaboration with the European Systemic Risk Board and Financial Stability Board to comprehend the potential impacts of a "shadow banking shock" on the broader financial system.