European Systemic Risk Board (ESRB), an independent body responsible for monitoring and evaluating systemic risks in the EU’s financial system, has demanded an “urgent political response” to deal with vulnerabilities in multi-jurdictional Stablecoins, as well as a warning of a general “risk on the basis of ongoing geopher
In a October 2 statementThe financing guard emphasized that “Third Country’s Multi-Isuer-System-Med Mushroomable
Stablecoins issued both in the EU and outside-have built-in vulnerabilities that require an urgent political response. “
The message comes after the 59th meeting in ESRB’s general board, which was held in September. As part of the meeting’s results, the board, chairman of the European Central Bank (ECB) president Christine LagardeAlso noted that “multifunction groups can function under regulatory regimes that are much easier than for financial conglomerate, which raises the question of divergent precautionary standards.”
In other words, ESRB is worried that other jurisdictions do not have as strong legislative standards as the EU. So Stablecoins whose issuing borders can pose an increased risk.
EU Finance Watchdog praised Block’s own standards and noted that the EU had used StableCoin protection measures in its landmark Markets in Crypto -Assets (Mica) regulation—Stablecoin provision came into force in June last year – as well as implementing Financial Stability Board (FSB) Recommendations on Global Stablecoins.
However, due to the risk of multiSuance systems, proposed measures can no longer be sufficient, a situation that is exacerbated by ongoing political uncertainty in some countries outside the EU.
“In line with previous reflections on dependencies of EU financial systems in third countries, members noted that the current geopolitical environment has the potential to test the resilience in our financial system,” said ESRB.
In addition, it emphasized a general increase in the risk related to the digital asset space and noted that “over the past three months, the global risk has increased, which has led to record -high asset values that seem increasingly wrong with the underlying macroeconomic outlook.”
The Financial Guard Dog did not specify exactly what assets it was referred to, but the comment coincides with Global Stablecoin Market Breaking $ 300 million (Market CAP) threshold last week, in accordance with to data from open source aggregator Defillama.
Some of these are not new problems. Following the former general board meeting in ESRB, held on June 24 and 26 this year, ESRB warned that “the growing links between the crypto sector and the financial sector needed to be carefully monitored.”
To address the challenge with this elevated risk, Finance Watchdog announced that it will publish a report on Stablecoins, crypto investment products and multifunctional groups in the coming weeks.
EU StableCoin regime
EU’s Mica Regulatory Framework came into force last year, with Stablecoin regulations comes into force on June 30, followed by the remaining requirements related to Crypto Asset Service suppliers (Casps) at the end of December 2024.
Mica brought with it a number of new obligations for Stablecoins, including demanding that issuers be approved by the “national competent authority” (NCA) in the Member State – usually the national central bank or the financial supervisory authority – and to publish a white book containing information about the relevant token for investors; New requirements for construction and governance regarding marketing, disclosure of information and handling of conflicts of interest; and precautionary requirements to ensure adequate liquidity and the ability to fulfill redemption requests.
Issuers of Fiat-supported Stablecoins (what the EU refers to as e-money-token or EMT) is also required to follow
Existing EMD 2 obligations—The second electronic money Money Directive, Developed to Align Eu Requirements and Supervisse Electronic Money Institution-Which Includes Informing Authorities on How they SafeGuard Funds Received in Exchange for e-MONEY ISSUD VALUE OF THE E-Money Held, E-Money Institutions MUST HAVE INITIAL CAPITAL OF NOT LESS THAN EUR 350,000 AT THE TIME OF AUTHORIZATION, and E-Money Institutions are subject to Legislation on money laundering.
Some stablecoins can also be regarded as “significant” due to their size or other factors and may, as a result, pose an increased systemic risk. A Stablecoin is classified as significant or systemic if it meets three of seven criteria, such as having more than EUR 5 billion (US $ 6.28 billion) in reserves, over 10 million users or processing over $ 500 million ($ 616 million) daily.
For these Stablecoin’s evidence Mica action comparable With the regime applied to classify global systemically important banks, such as improved capital and liquidity requirements, stricter governance frames and intensified stress testing. It also gives EBA supervision responsibility for issuers of these systemic symbols, which maintains stricter stress testing and monitoring.
In the statement on October 2, after the last 59th general board meeting, ESRB also stated that the EU had fully implemented the FSB recommendations on global Stablecoins.
FSB – an international body that monitors and provides recommendations on the global financial system –Published Its “high-level recommendations for regulation, monitoring and monitoring of global Stablecoin arrangements” in July 2023.
Noteworthy recommendations for monitoring these “global stablecoins” – tokens that have or may have a widespread assumption in several countries and can therefore affect the global financial system – including that the authorities should use the “appropriate forces and tools and sufficient resources, to extensively regulate, monitor and monitor” them.
According to FSB, the authorities should also require that global Stablecoin arrangements have robust frameworks, including systems and processes to collect, store, protect and report data exactly. In addition, it suggested that the supervisory authorities would have access to the information “if necessary and appropriate to fulfill their regulatory, supervisory and supervisory mandates.”
Another recommendation was that the authorities require issuers to provide all users and relevant stakeholders extensive and transparent information, which helps them understand Stablecoin’s function. This should include the Board’s framework, management, redemption rights, stabilization mechanism and risk management framework.
ESRB said it was pleased that these and other recommendations from FSB had been introduced on the Stablecoin market in the EU, but that the latest increased levels of systemic risk related to the area require comparable vigilance.
But until its promised report has been published, it is unknown what new measures, if any, ESRB will recommend.
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