EU Regulator Signals Potential Veto on Large Stablecoins in MiCA Approval Process

The European Banking Authority aims to prevent private, permissionless cryptocurrency initiatives from posing a threat to monetary policy privileges.

The European Banking Authority’s Jose Manuel Campa – Image source “coindesk”

The Chair of the European Banking Authority (EBA) has expressed the view that central banks should block the adoption of large stablecoins if they have concerns about the potential disruption to monetary policy. The EBA chair has highlighted apprehensions regarding the use of permissionless blockchains, emphasizing potential financial risks associated with them.

In the upcoming months, EBA Chairperson José Manuel Campa will be outlining specific regulations for the implementation of the European Union’s Markets in Crypto Assets (MiCA) framework. This significant framework will mandate stablecoin issuers to obtain a license and maintain appropriate reserves.

According to Campa, central banks should possess the authority to prevent the widespread adoption of “stablecoins” if they have an impact on public policy objectives such as financial stability or monetary policy. Campa made this statement during an event organized by the think tank OMFIF on Thursday. Additionally, under the MiCA framework, Campa’s agency will have the responsibility of directly overseeing significant issuers.

Under the MiCA framework, central banks have the authority to intervene in proposals for issuing new stablecoins, which are referred to as asset-referenced tokens. If these tokens gain widespread usage with over 1 million transactions per day, their issuance must be halted. Different rules apply to stablecoins linked to the value of a specific fiat currency, known as e-money tokens.

Campa expressed his vision of a future where stablecoins would become increasingly important as a payment method, similar to how private payment systems currently complement central bank money. However, he emphasized the importance of these stablecoins adhering to responsible guidelines, including compliance with anti-money laundering laws.

In response to a question from former U.S. Commodity Futures Trading Commission Chairman Timothy Massad, Campa seemed to express shared concerns about stablecoins on decentralized, permissionless blockchains. These concerns have also been raised by the U.S. central bank, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency, who believe that such stablecoins may pose risks of being unsafe or financially unsound.

According to Campa, stablecoin issuers in the EU are required to seek permission by presenting their project for assessment, especially considering the concerns raised by U.S. regulators. He further mentioned that more ambitious projects would undergo greater scrutiny.

Campa stated that all stablecoin issuers will be subject to a strong authorization and supervision framework, encompassing aspects such as prudential governance, business conduct, and redemption arrangements. Additionally, the largest issuers will undergo “enhanced stress testing” of their reserves.

MiCA is expected to receive final approval from finance ministers next week, and its regulations are projected to come into effect around July 2024. Significant participants in the industry, such as  Circle and Unstoppable Finance, have already expressed their plans to issue stablecoins in compliance with MiCA.