Brussels – On Wednesday, European Central Bank President Christine Lagarde stressed the need for European Union lawmakers to implement safeguards and robust equivalence regimes for foreign stablecoin issuers to reduce the risk of reserve runs within the EU, reports 24brussels.
The EU has established one of the strictest regulatory frameworks for crypto assets globally, requiring stablecoins linked to national currencies to be fully backed by reserves. Lagarde asserted that lawmakers must ensure that companies issuing stablecoins adhere to the same stringent standards in both the EU and internationally.
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,”
Lagarde commented at 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,”
she reiterated.
The ECB serves as the lender of last resort for eurozone banks and provides primary regulation, while also collaborating with national authorities to oversee financial stability across the EU.
How will MiCAR address stablecoin regulations?
Lagarde emphasized that the EU’s Markets in Crypto-Assets Regulation (MiCAR) allows stablecoin holders, regardless of issue location, to liquidate their assets at their discretion.
In times of crisis, they are likely to choose the EU due to its rigorous reserve requirements, although reserves may be insufficient during rapid sales.
“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 stated.
“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 governing stablecoins are primarily defined under the Markets in Crypto-Assets Regulation (MiCA), enforced since 2023 and expected to be fully operational through 2024 and 2025. Stablecoins are categorized into e-money tokens (EMTs) and asset-referenced tokens (ARTs), each with specific regulatory obligations. Issuers must be licensed in the EU and are subject to regulatory oversight.