The European Central Bank’s (ECB) chief supervisor, Andrea Enria, is calling for urgent action to fix a loophole in European Union (EU) rules that allows banks to bypass certain safeguards related to cryptocurrencies.
Speaking Tuesday (Nov. 14) at a conference in Venice, Enria highlighted the need to address this issue promptly to protect the financial system from potential risks, Reuters reported Tuesday.
As the cryptocurrency market rebounds from the collapse of major players in 2022, Enria emphasized the importance of comprehensive supervision and regulation to ensure stability and mitigate potential threats, according to the report.
Enria pointed out that the current EU framework categorizes banks’ activities as “crypto-asset service providers” outside the purview of the ECB’s supervision, the report said. This exclusion prevents the ECB from obtaining a complete view of banks’ exposure to cryptocurrencies and implementing necessary safeguards.
Enria stressed that the loophole hampers the effectiveness of prudential regulatory frameworks, including exposure limits, per the report. To rectify this, he called for urgent inclusion of crypto-asset service providers under the ECB’s supervision.
Enria also expressed concerns regarding the EU Markets in Crypto-Asset Regulation (MiCAR) provision, which requires stablecoin issuers to keep 60% of reserves in bank deposits, according to the report. He warned that if these funds are withdrawn, it could have unintended consequences for financial stability.
Enria advised banks not to rely on volatile deposits, particularly those from crypto-asset players, the report said. He further suggested that crypto-asset players should be compelled to work with multiple banks when MiCAR is fully implemented by the end of next year.
The Basel Committee on Banking Supervision (BCBS) has set global standards for exposures to crypto assets, which are expected to be transposed into EU law by Jan. 1, 2025, per the report.
As Enria’s term as the chair of the ECB’s Single Supervisory Board comes to an end, Claudia Buch, currently the vice-president of the Bundesbank, will succeed him at the end of the year, according to the report.
The EU’s approval of the Markets in Crypto Assets regulation in April gave the digital asset sector a legitimate onramp to one of the world’s largest and most mature market economies, PYMNTS reported at the time.
The previous lack of regulatory clarity around crypto caused many banks to avoid dealing with such firms.
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