Step from the European Union to prevent leveraged transactions in crypto

The European Union’s (EU) financial risk oversight agency has requested that leveraged transactions with crypto assets be blocked.

The Frankfurt-based European Systemic Risk Board (ESRB), responsible for identifying and monitoring possible risks that may pose a threat to the stability of the European Union’s (EU) financial system, has published its report recommending the systemic effects of cryptocurrency markets and policy options for risks arising from crypto assets and decentralized finance.

In the report, it was stated that the last year was turbulent for cryptocurrencies and decentralized finance, and their impact on the financial system was limited.

The report stated that there is currently very little connection between crypto markets and the traditional financial sector and the real economy, and none of these connections are of importance in the current situation.

“Must watch closely”

“Given the rapid growth and high volatility of cryptocurrencies, they should be closely monitored as they may pose systemic risks,” the report said.

Pointing out that the link between crypto assets and the traditional financial system will increase over time and the risks will increase if these links cannot be identified immediately, the report included some policy options recommendations to better understand the developments in crypto assets and their possible financial stability effects.

The report stated that the EU should improve its capacity to monitor possible channels of financial risk transmission, and this applies both to channels between the crypto sector and traditional finance, and to channels within the crypto sector.

Standard reporting and public disclosure obligations should be encouraged

In the report, it was noted that traditional financial sector institutions such as banks exposed to crypto in this area, crypto-risk investment funds and stablecoin issuers in the crypto sector and e-wallet providers should be encouraged to have standard reporting and public disclosure obligations.

In the report, which pointed out that political options should be evaluated against risks such as crypto holdings, crypto-based leverages, decentralized finance, staking and crypto debt, it was proposed to introduce leverage limits to mutual funds with crypto assets.

The non-binding ESRB’s recommendations are expected to shape future EU crypto-asset regulation.

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