Banks Don’t Need Extra Crypto Protections Yet, EU Regulator Says

Banks’ exposures to crypto aren't yet big enough to warrant extra protections designed to limit risks to the overall economy, the European Banking Authority said.

Crypto markets are too small and their regulation too immature to move ahead, the Paris-based watchdog said, after being asked by the European Commission whether to expand an existing regulatory toolkit for macroprudential risks to areas like cyber security, climate change and crypto.

“The EBA considers it premature to introduce new macroeconomic tools to address the systemic aspects of these risks at this stage,” the EBA said. “The EBA emphasizes the need for monitoring of the crypto-asset sector, in particular identifying old and new mechanisms, vulnerabilities and risks that can make crypto assets a source of systemic risk or threat to financial stability."

Noting growing consumer interest and the emergence of stablecoins, and with a new European Union law known as the Markets in Crypto Assets Regulation (MiCA) set to be finalized soon, the EBA said it will map crypto-asset activities within the bloc – potentially leading to further regulatory action. Macroprudential policy gives powers to ban banks from overexposure to particular sectors if they worry there could be a wider impact on the economy.

The suggestion from the EBA, which in March warned consumers to think twice before staking money on crypto, follows comments from officials at the Bank of England that it is also considering extending macro measures to cover virtual assets.

The commission’s idea has previously got a mixed reception from among the EU’s 27 member countries.

In a letter dated March 17, Swedish authorities said it wasn’t clear if existing rules were enough to tackle crypto risks. Just four days later, the Italian central bank suggested keeping the focus on more traditional policies that look at individual banks, as crypto exposures are “currently tiny ... the use of crypto assets for payments is limited to niche groups."

Read more: Crypto Popularity Could Pose Stability Risk, EU Watchdog Warns, as It Ponders New Powers