EU Commission investigates depth of EU safety net for stablecoin holders

The European Commission is investigating the extent to which EU rules on crypto assets protect the redemption rights of the bloc’s investors in identical e-money tokens (EMTs), the value of which is pegged to that of a single official currency.

France’s Autorite de controle prudentiel et de resolution (ACPR), the country’s banking and insurance supervisor, last year asked the European Banking Authority to establish whether it would be possible to have technically identical and fully fungible EMTs issued by both an entity licensed in the European Union and by another elsewhere not subject to EU rules.

The EBA then turned the matter over to the EU Commission as it is a matter of interpretation of EU law.

The EU in 2023 adopted an extensive set of rules for crypto assets, known as MiCAR, under which issuers of EMTs must receive supervisory clearance to operate and hold reserves, including as bank deposits, against tokens sold to ensure they can repay investors when required to.

In the United States, President Donald Trump has vowed to ease the regulatory burden faced by cryptocurrency companies, with the US Securities and Exchange Commission this week creating a task force to work on new rules.

Some issuers operate both within and outside the EU. For example, Circle, whose US dollar-pegged ‘USDC’ is the world’s second largest stablecoin by market value, operates in the EU as Circle SAS. USDC issued by Circle SAS are fully fungible with those issued by Circle LLC.

France’s ACPR also asked whether, in case of identical EMT issuance both within and outside the EU, it would be possible to allow only EU customers to present redemption requests to the EU-based entity. ACPR declined to comment further.

“The MiCA regulation already has quite a bit of flexibility built in, to avoid stifling innovation,” said Andrea Resti, a finance professor at Milan’s Bocconi University.

“To start interpreting the rules in ways that have not been clearly spelled out in the text could engender risks and weaken the effectiveness of the newly minted rules.”