Disagreement between European Commission and European Central Bank over potential risks posed by US stablecoins, as per a recent report.
European Central Bank Pushes for MiCAR Revision to Strengthen Stablecoin Regulation
The European Central Bank (ECB) is advocating for a revision of the MiCA regulations on crypto-assets, particularly stablecoins, to ensure enhanced regulatory clarity, risk management, and supervisory consistency. The ECB's concerns revolve around ensuring stablecoin issuers have robust liquidity management, risk controls, and professional standards to prevent risks to financial stability and monetary sovereignty that may not be fully covered by the current MiCAR framework.
The ECB and other EU authorities emphasize the need for stronger prudential requirements and tighter liquidity-management policies for issuers of asset-referenced stablecoins. This is to reduce systemic risks, as suggested in newly adopted regulatory technical standards (RTS) supplementing MiCA.
The regulation must balance consumer and investor protection with operational resilience, requiring continuous alignment with international standards. The ECB favours dynamic updates to MiCA to address ongoing challenges, such as ensuring stablecoins do not compromise the sovereignty of monetary policy or become a vector for financial instability.
Despite MiCA’s existing framework elaborating on fungibility and sovereignty safeguards, the ECB sees gaps or ambiguities in enforcement, risk assessment models, and licensing criteria for crypto-asset service providers (CASPs), prompting calls for revisions.
In the unlikely event of a stablecoin run, there might be a temptation for holders to get EU residents to redeem their stablecoins on their behalf, but self-hosted wallets account for a minority of the stablecoin's assets. The ECB's push for revising MiCA, especially regarding stablecoins, stems from its mandate to protect monetary stability and financial systems through more rigorous regulatory and supervisory enhancements beyond the current MiCAR baseline, reflecting evolving market realities and risk insights.
A clause in the MiCAR regulation requires a report from the Commission on potential amendments to address issues such as DeFi. The European Commission and European Central Bank have clashed over stablecoins, with the official from the European Commission stating that it makes no economic sense for U.S. users to impose redemption requests on European stablecoin issuers. The ECB President, Lagarde, has also called for a MiCAR revision, despite earlier assumptions that the ECB's key motivation was to encourage separate legislation for its digital euro CBDC project.
Stablecoins might be issued under both US regulations and MiCAR, with USDC being the only known example currently. Under MiCAR, EU stablecoin issuers are required to redeem stablecoins directly to end users, while draft US federal legislation and New York rules do not require this. If there were a stablecoin run, U.S. stablecoin holders might consider redeeming coins in the EU, but the terms and conditions of USDC do not allow this unless the holder resides in the EU. The ECB has raised concerns about sovereignty issues related to stablecoins and has expressed concerns over the global usage of US stablecoins.
Solid regulation for stablecoins is considered paramount, according to President Lagarde. The use of a foreign currency stablecoin cannot transact more than the equivalent of €200 million daily across the entire EU, but this limit does not cover certain financial transactions such as stock market trading, funds, or institutional payments. The MiCAR regulation provides multiple safeguards, including a clause where regulators can step in where they believe a stablecoin is threatening monetary sovereignty. Peter Kerstens, the MiCAR architect, believes there's no need for MiCAR v2. However, there is a potential risk for stablecoin holders using self-hosted wallets, as it may be trickier to determine their location.
A piece on stablecoin fungibility is planned to be published within the week.
- The European Central Bank (ECB) is advocating for a revision of the MiCA regulations to ensure robust liquidity management, risk controls, and professional standards for stablecoin issuers, aiming to prevent risks to financial stability and monetary sovereignty.
- The ECB's push for revising MiCA also involves addressing gaps or ambiguities in enforcement, risk assessment models, and licensing criteria for crypto-asset service providers (CASPs).
- Solid regulation for stablecoins is paramount, according to ECB President Lagarde, with concerns over the global usage of US stablecoins and the potential risk for stablecoin holders using self-hosted wallets.
- The ECB and EU authorities emphasize the need for strong prudential requirements, tighter liquidity-management policies, and balanced regulations (that align with international standards) for stablecoin issuers to manage systemic risks and minimize potential threats to monetary sovereignty.
