Regulation
Circle CEO says EU crypto law MiCA ‘introduces many banking risks’ – DL News
- The European Union’s MiCA regulation introduces credit and counterparty risk.
- Experts expect stablecoin reserve laws to be revised in the coming years.
- Stablecoin regulations have forced Circle to issue USDC from two jurisdictions.
Stablecoin issuer Circle hopes to see changes in future regulation of crypto-asset markets in the European Union.
“MiCA actually introduces a lot of banking risks,” Circle CEO Jeremy Allaire told reporters in Brussels last week.
The MiCA’s provisions on reserves are the element which, according to him, is particularly worrying.
The MiCA law requires companies issuing fiat-pegged stablecoins to hold 30% of cash reserves in multiple EU bank accounts, and up to 60% for large e-money tokens.
“Bank deposits introduce credit risk and counterparty risk,” said Patrick Hansen, head of EU strategy and policy at Circle, a problem he said is recognised by regulators at the European Banking Authority.
“The MiCA reserve requirements will certainly be part of next year’s interim review and then ultimately respond to the MiCA review in two or three years,” Hansen said.
Some experts speculate that a MiCA II regulation will follow and update the current legislation with more provisions on decentralized finance.
Electronic Money License
Circle is best known for issuing the dollar-pegged USDC with a market cap of around $34 billion – the second-largest stablecoin in the world after Tether’s USDT.
Join the community to receive our latest stories and updates
The French banking authority approved Circle’s electronic money institution license on July 1, just after the MiCA regime for stablecoins came into effect.
This makes the stablecoin issuer MiCA compliant.
Banking challenges
Some industry players are concerned about the difficulty of finding enough banking partners to hold the required reserves.
“It’s been very difficult for companies in our industry to maintain stable banking relationships,” Allaire said.
The 2023 banking crisis — which saw the collapse of crypto-friendly trio Silvergate Capital, Signature Bank and Silicon Valley Bank — didn’t help the digital asset industry’s reputation for finding banking partners.
UK banks generally have blanket bans when it comes to working with crypto companies.
But Circle’s founder said banking has not been a problem for the company, which relies on “several large, systemically important global banks … in every major region.”
He did not specify which one.
Banks have the advantage of offering crypto services under MiCA, which gives credit and e-money institutions a head start in managing digital assets.
“The banks themselves want to get involved in this sector in a much more comprehensive way,” Allaire said.
European banks are interested in issuing stablecoins, accessing digital assets and developing innovative payment methods.
Double broadcast
Due to the EU’s new provisions on stablecoins, Circle had to spread its USDC issuance across jurisdictions on both sides of the Atlantic and manage global redemptions.
“USDC is now issued by two major jurisdictions with two separate sets of controls and prudential requirements,” Allaire said. “And we got the approval from the regulators, which is a very big deal.”