ECB Warns Non-EU Stablecoins Won’t get Free Pass in Europe

ECB President Christine Lagarde called for consistent EU oversight of stablecoins, stressing that gaps in rules could put investors and markets at risk. Her comments signal a move toward tighter regulation of stablecoins as the European regulator is trying to push the digital euro.

Christine Lagarde, president of the European Central Bank, made it clear during her speech at the ninth annual conference of the ESRB that the European Union should, in her view, hold stablecoin issuers outside its borders to roughly the same rules as those within.

Speaking at the conference in Frankfurt, Lagarde stressed that regulatory gaps could leave investors exposed and undermine financial stability.

“European legislation should ensure that such schemes cannot operate in the EU unless supported by robust equivalence regimes in other jurisdictions and safeguards relating to the transfer of assets between the EU and non-EU entities.”

Christine Lagarde

The ECB head added that without a level global playing field, risks will “always seek the path of least resistance.”

Lagarde, known for her metaphor-filled speeches, compared financial oversight to submarine sonar. In a noisy, tricky environment, she said, only careful listening and the right frameworks can spot danger. Regulators, like submariners, must listen “carefully and to separate signal from noise.”

Once skeptical, now scrambling

The ECB’s latest stance is a considerable pivot for a central bank that, just a few years ago, seemed largely indifferent to stablecoins. For example, in 2022, an ECB research paper dismissed euro-based stablecoins as “less liquid and tend[ing] to be sold similarly to other risky assets rather than behaving like a vehicle in digital transactions and trading.”

The report concluded that stablecoins “should not be regarded as a new class of safe asset but rather as a less volatile but risky crypto-asset.”

From the beginning, the bank has been backing the digital euro, a kind of central bank digital currency, as the main tool to modernize Europe’s payments. But things have changed since then dramatically.

Early attempts at central bank digital currencies hit bumps thanks to U.S. policy and market reactions, especially after the Trump administration raised doubts about CBDCs. Meanwhile, stablecoins have found a role in cross-border and crypto payments, and the ECB now seems to be rushing to keep Europe in the game.

Same regulations

At the heart of Lagarde’s argument is a concern over liquidity risks, which she says remain familiar even as new financial technologies emerge. Stablecoin issuers promise redemptions at face value, but if reserves are limited — or spread across different countries — there could still be trouble.

“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 MiCAR also prohibits redemption fees. But the reserves held in the EU may not be sufficient to meet such concentrated demand.”

Christine Lagarde

The ECB has already tried to mitigate some of these risks through the EU’s Markets in Crypto-Assets Regulation, which requires EU stablecoin issuers to hold substantial reserves in bank deposits and to guarantee redemption at face value.

But as crypto.news reported earlier, the largest stablecoin issuer by market capitalization Tether pushed back hard against that requirement, with CEO Paolo Ardoino warning that MiCA rules could create systemic risks for banks.

One way or the other, the rise of multi-issuance schemes — where EU and non-EU entities jointly issue stablecoins — exposes gaps in enforcement, she said. Lagarde likened the risk to that faced by multinational banking groups, which must ensure liquidity is available where and when it is needed, often under complex regulatory frameworks such as the net stable funding ratio and liquidity coverage ratio.

Her remarks come amid a broader scramble by regulators worldwide to figure out stablecoin rules, which are increasingly used for crypto trading and cross-border payments. While some central banks still favor their own CBDCs, private stablecoins show no signs of slowing. Europe now faces two challenges though. One is to regulate new stablecoins and two: push the digital euro, which hasn’t even gained adoption yet.