The European Union is strengthening the role of the European Central Bank in overseeing climate risks and digital assets in the banking sector.
The move comes as the scope of risks associated with the banking sector expands, particularly climate change and the fast-growing digital asset sector.
Under the new mandate, the ECB’s responsibilities will now also include overseeing the bank’s transition strategy towards a net-zero carbon economy over the next 30 years. These developments place the ECB at the forefront of overseeing how banks prepare for and adapt to environmental change, which is recognized as increasingly important given the potential financial risks of climate change.
The ECB’s jurisdiction has also been expanded to include supervision of the servicing of bank-owned cryptocurrency assets. These changes reflect the growing importance of digital assets such as Bitcoin (BTC) in the financial landscape and the need for a strong regulatory framework to manage associated risks such as money laundering.
This expansion of powers is expected to unify the approach of European banking regulators on climate-related issues. There has previously been tension over how aggressively the ECB should implement climate-related policies, with some board members wary of overstepping the agency’s mandate.
The reform also gives the ECB the authority to supervise operating leasing businesses owned by banks. Although not traditionally the focus of regulation, these businesses pose unique challenges, as evidenced by issues such as IT integration at Societe Generale SA’s LeasePlan.
In particular, the EU’s decision to strengthen the ECB’s role came within a broader context of regulatory coordination. For example, international standards for bank capital, initially established in response to the 2008 financial crisis, were scaled back. Moreover, the reforms did not fully meet the ECB’s expectations regarding the screening process for senior bank executives.