EU risk watchdog calls for urgent safeguards on stablecoins

Core Viewpoint - The European Union's financial risk watchdog has called for urgent safeguards on stablecoins that are only partially issued within the bloc, reflecting concerns from the European Central Bank about potential risks to financial stability [1][2]. Group 1: Regulatory Concerns - The EU has established one of the strictest regulatory frameworks for crypto assets globally, but there are concerns that issuers from outside the EU may face less stringent regulations, potentially importing financial risks into the bloc [2]. - The European Systemic Risk Board (ESRB) highlighted vulnerabilities in "multi-issuer" schemes where stablecoins are issued by both EU and non-EU entities, necessitating an urgent policy response [2][3]. Group 2: Liquidity and Market Dynamics - EU regulations mandate that stablecoins must be fully backed by reserves, and there is a call for uniform standards for issuers both within and outside the EU [3]. - In scenarios of high demand, reserves held in the EU may not suffice, leading to liquidity issues and possibly requiring intervention from the European Central Bank [4]. - The ESRB pointed out that multi-function groups may operate under less stringent regulatory frameworks compared to financial conglomerates, raising concerns about inconsistent prudential standards [4].