Regulation
Circle CEO Says EU Crypto MiCA Law ‘Introduces Lots of Banking Risks’ – DL News
- The European Union MiCA regulation introduces credit and counterparty risk.
- Experts predict that the laws on stablecoin reserves will be revised in the coming years.
- Stablecoin regulation forced Circle to issue USDC from two jurisdictions.
Stablecoin issuer Circle hopes to see changes in the future regulation of cryptocurrency markets in the European Union.
“MiCA actually introduces a lot of banking risk,” Circle CEO Jeremy Allaire told reporters in Brussels last week.
According to him, the provisions of the MiCA on reserves are the most worrying element.
MiCA requires companies issuing fiat-backed stablecoins to hold 30% of their cash reserves in multiple EU bank accounts, and up to 60% for the most significant e-money tokens.
“Bank deposits carry credit and counterparty risks,” said Patrick Hansen, Circle’s head of EU strategy and policy, a problem he said is recognised by regulators at the European Banking Authority.
“The MiCA reserve requirements will definitely be part of the interim review next year, and then they will ultimately meet the MiCA review in two to three years,” Hansen said.
Some experts speculate that a MiCA II regulation will follow and update the current legislation with further provisions on decentralized finance.
Electronic Money License
Circle is best known for issuing USDC, a dollar-pegged cryptocurrency with a market capitalization of around $34 billion — the world’s second-largest stablecoin after Tether’s USDT.
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The French banking regulator approved Circle’s e-money institution license on July 1, shortly after the MiCA regime for stablecoins came into force.
This makes the stablecoin issuer MiCA compliant.
Banking challenges
Some in the industry fear that finding enough banking partners to hold the required reserves
“It’s been really, really difficult for companies in our industry to have consistent banking relationships,” Allaire said.
The banking crisis of 2023, with the collapse of crypto-friendly trio Silvergate Capital, Signature Bank, and Silicon Valley Bank, did not help the digital asset industry’s reputation for finding banking partners.
UK banks typically have blanket bans when it comes to working with cryptocurrency firms.
But Circle’s founder said banking has never been an issue for the company, which relies on “several major global systemic banks (…) in every major region.”
He did not specify which one.
Banks have an advantage in offering cryptocurrency-based services under MiCA, which gives credit and e-money institutions an edge in managing digital assets.
“The banks themselves want to get into this space much more comprehensively,” Allaire said.
European banks are interested in issuing stablecoins, providing access to digital assets and developing innovative payment systems.
Double emission
Following new EU regulations on stablecoins, Circle had to split its USDC issuance between jurisdictions on both sides of the Atlantic and handle global redemptions.
“USDC is now being issued by two major jurisdictions with two distinct sets of requirements and prudential oversight,” Allaire said. “And we’ve gotten regulators to accept that, which is a very important thing.”