EU Crypto Regulation: Balancing Industry Growth and Financial Stability Risks

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The European Union (EU) has been diligently working on new measures to establish rules for the cryptocurrency industry, protecting the interests of retail players. Recently, EU regulators have been exploring ways to cut down on leveraged bets on digital assets by setting limits for exchanges, investment funds, and other entities. The European Systemic Risk Board, in a statement on May 25th, pushed for implementing steps to halt potential threats that might compromise financial stability.

The ESRB has made several recommendations, which include compelling all cryptocurrency firms to submit regular reports and introducing specific regulations for some of the largest players in the field. The ESRB’s report elaborated on potential risks: “Systemic risks could arise quickly and suddenly. If the rapid growth trends observed in recent years were to continue, crypto-assets could pose risks to financial stability.”

Consequently, some proposed changes to the recently passed MiCA regulations include introducing leverage limits for investment funds exposed to crypto-assets. The ESRB has also called for limiting crypto firms’ ability to lend tokens to clients, a popular method for making high-leveraged bets. In addition, the ESRB requested the establishment of high collateral requirements for decentralized finance products and stablecoins.

This development comes shortly after the EU Council approved the Markets in Crypto-Assets (MiCA) legislation. Under this new law, EU member states and the European Parliament have collectively adopted MiCA rules, ensuring that cryptocurrency businesses must obtain authorization from the EU to serve customers within the bloc. Moreover, these businesses must adhere to specific protections to prevent issues related to money laundering or terror financing.

These new rules were introduced following some significant shakeouts in the crypto space and several high-profile collapses last year. Although the recent ESRB recommendations are not binding, they will inform the EU’s future work on updating its crypto asset regulations (MiCA).

While the presented content may reflect the author’s personal opinion and current market conditions, readers should conduct thorough market research before investing in cryptocurrencies. Neither the author nor the publication assumes responsibility for any personal financial loss.

Source: Coingape

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