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The ECB Requests Expedited Regulation for Stablecoins

  • The European Central Bank has impressed that the new rules must be implemented “urgently”.
  • The central issuer of the EU also acknowledged that the financial risks involved with stablecoins are “limited” at present.
  • Likewise, on Monday, July 11th, the FSB requested also that stablecoins be regulated.

The European Central Bank (ECB) has requested that stablecoins be subjected to greater regulatory supervision as soon as possible, before they become a real financial risk for the stability of European countries.

“Stablecoins are in the spotlight due to their rapid growth, increasing global use cases and potential financial risk contagion channels,” the ECB began in a macroprudential bulletin published on Monday, July 11th. 
The European Central Bank warns that "the risks [posed] to financial stability from stablecoins are currently still limited in the euro area, but if growth trends continue at their current pace, this may change in the future”.

The issuer recognizes that stablecoins are continuing to grow—even despite the risks and the recent crash of crypto assets—and today they represent “an important part of the crypto-asset ecosystem, with some posing risks to liquidity in crypto-asset markets in the event of failure”.

“The speed and cost of stablecoin transactions, as well as their redemption terms and conditions, fall short of what is required of practical means of payment for the real economy,” asserted the document, titled 'The Role of Stablecoins in cryptocurrencies and beyond: functions, risks and politics'.

The ECB Increases Regulatory Pressure

For the ECB, it is essential that stablecoins be effectively regulated by all member states of the EU, with the overall aim of developing “responsible innovation”, and ensuring “financial stability”.

This “Appropriate regulation, supervision and oversight” must be done “before stablecoins become a risk to financial stability and the smooth functioning of payment systems,” the bank emphasizes.

The ECB has ramped up its pressure campaign in recent months in a bid to speed up implementation of regulations for crypto assets in the euro zone. Meanwhile, the ECB’s President, Christine Lagarde, has taken every opportunity to discredit the value of cryptocurrencies. 

The document's drafters, led by senior adviser Mitsu Adachi, note that "existing stablecoins urgently need to be brought into the regulatory perimeter, and new ones need a regulatory framework to be established."

On algorithmic stablecoins, officials assert that, in view of their specific risks, they should be treated as “unbacked crypto assets.”

Likewise, they recommend that, in cases where such coins are “used for payment purposes, regulatory regimes need to provide further clarity with respect to other areas such as data privacy, consumer protection, market integrity, AML/CFT and tax rules”. 

The bank contends that equal conditions must be guaranteed worldwide in the immediate future for the effective implementation of new regulatory rules “through a consistent, granular and robust regulatory approach.”

On the Flipside

  • Although the ECB recognizes that stablecoins represent “only a small part of the total crypto-asset market”, it underlines that “ the largest ones have assumed a critical role within the crypto-asset ecosystem”.

 

On Monday, July 11th, the Financial Stability Board (FSB) also called for the swift implementation of a regulatory framework for stablecoins. 

The body in charge of monitoring and submitting recommendations for the future operations of the global financial system emphasized that “crypto-assets and markets must be subject to effective regulation and oversight commensurate to the risks they pose, both at the domestic and international level.”

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed to be financial legal or tax advice. Trading Forex, cryptocurrencies, and CFDs poses a considerable risk of loss

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