The European Union (EU)’s banking supervisor has addressed stablecoin risk concerns of other major regional regulators following the recent push for stricter crypto regulations in the bloc.
On Wednesday, the European Banking Authority (EBA) addressed the European Central Bank (ECB) and the European Systemic Risk Board (ESRB)’s concerns about financial instability risk related to stablecoins.
The guidance, although not legally binding, is expected to put pressure on EU authorities to implement the restrictions or “explain how financial stability can be preserved in their absence.”
A spokesperson for the EBA told Reuters that the ESRB’s concerns reflect “the inherent risks related to potential massive redemption requests.” However, the severity will depend on a “stablecoin’s business model and scale.”
“Based on these elements, necessary safeguards following MiCA should be put in place to mitigate the risk,” the spokesperson continued, but noted that it is waiting for clarification from the European Commission (EC) on whether multi-issuance is allowed under MiCA.
Judith Arnal, an associate senior research fellow at the Centre for European Credit Research Institute (ECRI) and board member at the Bank of Spain, previously asserted that multi-issuance stablecoins would be MiCA’s first “real credibility test.”
Arnal argued that “this institutional standoff has created regulatory paralysis with far-reaching consequences,” which risks “undermining MiCA’s credibility as a coherent and globally influential regulatory framework.”
Reportedly, two national regulators share the ECB and ESRB’s concerns. People familiar with the matter told the news media outlet that the regulators were “worried the U.S. could prevent reserves from being transferred to Europe to meet redemption requests.”
Nonetheless, Luis del Olmo, senior expert at the EBA, stated that “From a liquidity point of view, issuers need to hold an amount of liquid assets to meet potential redemption requests. And this should work at a global level.”
It’s worth noting that the European regulatory landscape could soon see significant changes, as the EU is reportedly exploring shifting oversight of key financial markets, including crypto, from national authorities to a centralized supervisory authority.
In an interview, Ross detailed that the EC is preparing new rules that would shift the supervision of several areas of financial markets from national authorities to ESMA. The move aims to push for “a capital market in Europe that is more integrated and globally competitive” and “create more of a single market for capital in Europe.”
Some regulators have argued that a single financial regulator, like the US Securities and Exchange Commission (SEC), could become a “monster.”
