Existing EU crypto rules address stablecoin risk, banking regulator says

By Elizabeth Howcroft

PARIS (Reuters) -Europe's existing crypto rules already contain safeguards against risks posed by stablecoins, the region's banking supervisor told Reuters, after the European Central Bank warned that the tokens could threaten financial stability.

The ECB and the European Systemic Risk Board (ESRB) have urged Brussels to ban the “multi-issuance” model, where global stablecoin firms treat tokens they issue in the EU as interchangeable with those outside the bloc. The ESRB, chaired by ECB President Christine Lagarde, said in a report that a rush by non-EU holders to redeem EU-issued tokens could “amplify runs within the bloc.”

Asked about the ESRB's concerns, a spokesperson for the Paris-based European Banking Authority said the report "reflects the inherent risks related to potential massive redemption requests" but their severity depended 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 added.

The EBA said it was waiting for clarification from the European Commission on whether multi-issuance is allowed under the EU's crypto rules, known as MiCA.

Issuers of stablecoins - a type of cryptocurrency pegged to a currency, usually the U.S. dollar - say they hold dollar-based reserves to enable redemptions.

"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," Luis del Olmo, senior expert at the EBA, said in an interview.

Stablecoins remain a small part of the financial system but they are growing fast, driven by El Salvador-based Tether. Circle's USDC, the largest EU-regulated stablecoin using multi-issuance, has $75 billion tokens in circulation. National regulators oversee MiCA-licensed entities, but the EBA will directly supervise significant stablecoins.

People familiar with the positions of two national regulators told Reuters they share the concerns of the ECB and ESRB, speaking on condition of anonymity. One source said they were worried the U.S. could prevent reserves from being transferred to Europe to meet redemption requests.

The European Commission has signalled that it sees no need for major changes to MiCA.

(Reporting by Elizabeth Howcroft; Editing by Tommy Reggiori Wilkes, Elaine Hardcastle)