The European Central Bank (ECB) put forward a clear message to the United States this Thursday, highlighting the European Union’s ongoing drive to speed up and broaden the regulation of crypto assets. President Christine Lagarde called for a rapid rollout of the Crypto-Asset Markets Regulation, known as MiCA, a worldwide first that will bring many issuers and service providers in the sector under formal EU oversight. Lagarde also suggested that MiCA is a solid framework but acknowledged room for improvement in areas not explicitly covered by the regulation.
Speaking at the annual conference of the European Systemic Risk Board, Lagarde noted that the pace of MiCA’s implementation has been slower than hoped. The regulation that began as a topic of discussion in 2015 and resurfaced in September 2020 was only definitively approved after the joint agreement of the European Commission, the European Parliament, and the European Council. Yet, substantial adaptation time will push the rules into effect later, delaying full enforcement while markets prepare for the change.
Lagarde emphasized that crypto assets can be highly volatile and pose significant risks to consumers. She also pointed to the notable price declines that have marked the sector, including Bitcoin’s retreat from its late-2021 peak and the disruption surrounding FTX, a crypto exchange once valued at billions. While incidents have not yet caused widespread systemic damage, she warned that the growing links between the crypto economy and traditional financial systems could, if left unchecked, kindle broader risks.
To counter these risks, Lagarde argued that swift MiCA implementation is crucial for closing loopholes and enhancing stability. She suggested a pragmatic, phased approach where initial steps address essential risk factors, followed by advances that cover the broader web of crypto activities. She also called for clearer regulation of how crypto operations relate to credit activities and the treatment of crypto trading and staking as financial activities, with continued attention to decentralized markets and ongoing market developments. The adding note was that more details would likely emerge in the weeks and months ahead as policymakers refine the framework.
The chair of the Supervisory Board urged European legislators to tighten regulation around non-bank financial entities, including money market funds. He highlighted the need to strengthen liquidity rules and guard against funding shocks that affected markets during the COVID-era disturbances and more recent episodes. He argued that rapid legislative action in this space is essential to empower non-banks to support the financial system’s resilience and capacity to absorb shocks. The emphasis was on building a robust, well-capitalized system rather than on quick fixes.
Lagarde concluded by noting that the reforms enacted since past crises have left the banking sector in a stronger position, though no one should become complacent. She urged institutions to maintain rigorous capital planning, ensure prudent asset valuation practices, and stay vigilant about credit risk and the accuracy of internal risk models. The overarching message was clear: continued vigilance, solid regulatory provisions, and proactive oversight are required to keep financial stability intact as the crypto landscape evolves.