European Central Bank President Christine Lagarde said the EU must apply the same tight reserve rules to non-EU stablecoin issuers as it does to firms inside the bloc. She made the remarks on Wednesday at the European Systemic Risk Board annual conference in Frankfurt.
Lagarde warned that gaps in the Markets in Crypto-Assets, or MiCA, law leave room for risky setups. She said this could let investors rush to redeem in the safest jurisdiction, creating pressure on EU reserves. She called for clearer rules and stronger global cooperation to close those holes.
Regulatory gaps in MiCA
Lagarde noted that MiCA already forces stablecoin issuers in the EU to hold large reserves in bank deposits. The rules also require that EU investors can redeem coins at par value.
Still, she said the law falls short where schemes span both EU and non-EU entities. In those arrangements, only the EU part has to meet MiCA rules. That split can leave the whole arrangement exposed, she said.
Risk of runs and arbitrage
If a run starts, Lagarde said investors will likely try to redeem from the part with the strongest protections. That will usually be the EU side, where MiCA even bans redemption fees.
But she warned that the reserve holdings inside the EU might not cover a sudden, heavy wave of redemptions. That gap could let firms route risk to weaker jurisdictions. Lagarde said lawmakers should stop such schemes from operating in the EU unless other countries meet strict equivalence tests.
Non-bank finance is larger and complex
Lagarde also pointed to a wider change in finance, and she said Europe’s non-bank financial sector has grown fast. In relative terms, it now stands at about 3.8 times GDP, she said, compared with 3.1 times GDP in the U.S.
She argued that the line between banks and other financial players is fading. New entrants like fintech platforms blur old categories, and that makes spotting risks harder than when banks dominated the system.
Timeless functions of finance
To make sense of the new complexity, Lagarde urged focusing on basic financial functions. She listed common activities such as transacting, saving and borrowing. She also mentioned investing, sharing risk, insuring and hedging, and changing maturity.
Those core roles, she said, help regulators see the real risks behind novel products. They also show where rules need to follow economic function rather than firm labels.
Calls for international cooperation
Lagarde stressed that national rules alone will not be enough, and she argued for strong international cooperation and common standards. Without that, firms will seek the weakest rules and risks will migrate across borders.
She said Europe should not allow cross-jurisdiction schemes to dodge safeguards. Equivalence regimes and clear rules on asset transfers between EU and non-EU entities are key, she added.
MiCA’s role and the wider context
MiCA came fully into effect at the end of last year and sets broad rules for crypto asset issuers and service providers across the EU.
Lagarde’s remarks underline a push to shore up that framework, and her comments also reflect a global shift. In other regions, stablecoins are gaining ground as firms and regulators reconsider how to oversee digital money.
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