ECB, EU central banks suggest dropping stablecoin deposits rule

PARIS, Sept 22 : Stablecoin issuers should not be required to hold a minimum proportion of their reserve assets as bank deposits because they could leave lenders exposed to a run on stablecoins and less stable deposits, the ECB and other EU central banks said on Tuesday.

The European System of Central Banks (ESCB) - a body made up of the ECB and the 27 national central banks of EU countries - made the comments in a response to a consultation on the MiCA regulations, a set of EU-wide crypto rules which came into force last year.

Stablecoin issuers are required to hold 30 per cent of their reserves as bank deposits - or 60 per cent if they are major issuers.

But the central banks recommended changing MiCA rules to drop this requirement and instead specify a minimum percentage which should be held in assets that mature within one and five working days.

"If reserves are held as bank deposits, stablecoins can alter banks' funding structures by replacing relatively stable retail deposits with deposits from stablecoin issuers, which tend to be less stable and more sensitive to market conditions," the central banks' paper said.

Regulators and financial stability watchdogs have long warned that stablecoins - a kind of crypto token pegged to a currency, usually the dollar - could harm financial stability by allowing problems in crypto markets to spill over into the wider financial system.

MULTI-ISSUANCE RISKS AND MICA ENFORCEMENT CHALLENGES

The central banks also doubled down on the European Systemic Risk Board's view that that multi-issuance stablecoin models - where global stablecoin firms treat tokens they issue in the EU as interchangeable with those outside the bloc - pose financial stability risks and are not allowed under the current rules.

If multi-issuance is allowed in future, MiCA rules should be updated to include "a comprehensive framework of safeguards", including an assessment of whether other countries' stablecoin rules could be considered equivalent, the central banks said.

The US last year signed a law to create a regulatory regime for stablecoins, but wider US crypto rules have effectively been put on ice after the US Senate last week failed to advance crypto legislation called the Clarity Act.

Under MiCA, crypto companies had until June this year to secure an EU licence or to wind down operations in the bloc.

The central banks said that European regulators are facing "material challenges" in enforcing the bloc's crypto regulations, as non-compliant crypto companies continue to have access to EU customers, creating investor protection concerns.