EU Risk Regulator Calls for Urgent Safeguards on Stablecoins

The European Union’s financial risk watchdog on Thursday called for immediate safeguards on stablecoins that are partially issued within the bloc, echoing a warning from the European Central Bank (ECB), which fears their failure could trigger a depletion of reserves.

Stablecoins are a type of cryptocurrency designed to maintain a stable value by being pegged to reserve assets such as a currency or a basket of assets.

The EU has implemented one of the world’s strictest regulatory regimes on crypto assets, but policymakers worry that issuers based outside the bloc are benefiting from lighter oversight and could import financial risks.

In a statement, the European Systemic Risk Board (ESRB), chaired by ECB President Christine Lagarde, said: “The General Board stressed that third-country multi-issuer schemes—including transferable stablecoins issued both inside and outside the EU—carry inherent vulnerabilities that require urgent policy action.”

EU rules require stablecoins to be fully backed by reserves. Lagarde stressed that the EU must enforce a level playing field for companies issuing stablecoins both inside and outside the bloc.

Under “multi-issuer” schemes, a joint EU and non-EU entity issues stablecoins, but the EU’s stringent rules do not apply to the non-EU issuer, creating an uneven competitive landscape.

The key concern is that in times of market stress, investors would prefer to hold reserves within the EU, where protections are stronger. However, EU-based reserves may be insufficient to meet concentrated demand, potentially leading to liquidity shortfalls and forcing the ECB to intervene.

The ESRB further cautioned: “Multi-entity arrangements may operate under looser regulatory frameworks than financial groups, raising concerns about inconsistent prudential standards.”