Brussels (Brussels Morning Newspaper) – On Wednesday, European Central Bank President Christine Lagarde emphasised that European Union lawmakers should require safeguards and strong equivalence regimes from foreign stablecoin issuers to mitigate the risk of reserve runs within the EU.
Brussels has decreed one of the most stringent crypto asset regulations worldwide, where stablecoins tied to a national currency must be fully backed by reserves. However, Lagarde noted that lawmakers should seek to ensure the companies issuing stablecoins are held to the same high standards both in the EU and globally.
What are foreign stablecoin issuers lacking?
“European legislation should ensure that such schemes cannot operate in the EU unless supported by robust equivalence regimes in other jurisdictions and safeguards relating to the transfer of assets between the EU and non-EU entities,”
She told a regulatory conference.
“This also highlights why international cooperation is indispensable. Without a level global playing field, risks will always seek the path of least resistance,”
Lagarde said.
The ECB acts as the last resort lender for eurozone banks and serves as their primary regulator. Additionally, it jointly oversees financial stability across the EU with national authorities.
How will MiCAR address stablecoin regulations?
Lagarde pointed out that the EU’s Markets in Crypto-Assets Regulation (MiCAR) permits holders of a stablecoin, whether issued within the EU or internationally, to liquidate it at their own discretion.
This suggests they would probably select the EU during a run, given its more stringent reserve requirements. However, reserves in the EU might fall short during such a rapid sale.
“In the event of a run, investors would naturally prefer to redeem in the jurisdiction with the strongest safeguards, which is likely to be the EU, where MiCAR also prohibits redemption fees,”
Lagarde said.
“But the reserves held in the EU may not be sufficient to meet such concentrated demand.”
How does the EU’s new crypto law impact stablecoins?
The current EU regulations regarding stablecoins are mainly established under the Markets in Crypto-Assets Regulation (MiCA), which has been in effect since 2023 and will be fully enforced through 2024 and 2025. Stablecoins are categorised into e-money tokens (EMTs) and asset-referenced tokens (ARTs), each with clear regulatory obligations. Stablecoin issuers must be licensed in the EU and be subject to regulatory oversight.
