ECB President Lagarde Warns EU to Address Stablecoin Vulnerabilities

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In an address at the ninth annual European Systemic Risk Board conference, European Central Bank (ECB) President Christine Lagarde called on EU lawmakers to tighten the bloc’s regulatory framework for stablecoins. She warned that current gaps could expose the financial system to risks from non-EU stablecoin issuers.

“The noise is getting louder and the landscape more complex, but the echoes of risk remain familiar,” Lagarde said, before drawing particular attention to liquidity risks from gaps in the EU’s Markets in Crypto-Assets Regulation (MiCA). 

Lagarde explained:

One [gap] is so-called multi-issuance schemes, where an EU entity and a non-EU entity jointly issue fungible stablecoins. In such cases, [MiCA] requirements do not extend to the non-EU issuer. In the event of a run, investors would naturally prefer to redeem in the jurisdiction with the strongest safeguards, which is likely to be the EU, where [MiCA] also prohibits redemption fees. But the reserves held in the EU may not be sufficient to meet such concentrated demand.

Lagarde urged policymakers to introduce transfer of assets safeguards and robust equivalence regimes, meaning non-EU issuers would need to follow the same standards as their EU counterparts to limit risk. 

“We know the dangers,” she warned. “And we do not need to wait for a crisis to prevent them. That is why we must take concrete steps now.”