EU Risk Watchdog Urges Stronger Safeguards on Cross-Border Stablecoins

The European Systemic Risk Board (ESRB) has issued a stark warning about the vulnerabilities posed by stablecoins issued partially outside the EU. These digital assets, designed to maintain a steady value, are under increasing scrutiny as regulators fear they could trigger systemic instability in the bloc's financial system.

The ESRB's call for urgent action echoes concerns previously raised by the European Central Bank (ECB). The EU's Markets in Crypto-Assets (MiCA) law already imposes strict regulations, but officials worry about third-country issuers operating under looser rules while offering fungible tokens across the bloc.

Multi-issuer stablecoin schemes spanning EU and non-EU jurisdictions present 'built-in vulnerabilities' that demand immediate policy intervention. The lack of transparency and inadequate safeguarding of reserves backing these stablecoins could pose significant risks to financial stability.