EU Regulator: Crypto Assets Pose No Significant Risk to Financial Stability

The European Securities and Markets Authority (ESMA) said crypto assets currently pose no significant risk to financial stability. The regulator cited the size of the crypto asset market, with a market capitalization of $2.45 trillion on April 9, as only about 1% of global financial assets.

Furthermore, ESMA said crypto assets have “limited integration” with traditional finance and the real economy, making them an unlikely source of instability. Natasha Cazenave, an ESMA executive director, said crypto assets are not “widely used” in critical financial services, including payments, which reduces their potential to disrupt financial markets.

While some fear the increase in crypto funds and derivatives could transmit risk between crypto and traditional markets, Cazenave again cited their small size as a reason for limited concern.

“We do not believe these products represent a major risk to financial stability at this point, owing to their small size. We estimate that crypto funds in the EU represent less than 1% of the EU fund universe,” Cazenave told the European Parliament’s Economic and Monetary Affairs Committee.

However, Cazenave conceded that as European Union residents increase their adoption of crypto assets, the risk to financial stability will grow. She also identified stablecoins, along with bitcoin and ethereum, as assets requiring continuous monitoring.

In her April 8 opening statement, Cazenave said the stablecoin market needs a robust and consistent global regulatory framework to address issues like depegging or a run on a stablecoin. Under the EU’s Markets in Crypto Assets (MiCA) legislation, stablecoin issuers face stringent prudential and governance rules, as well as rules regarding reserve composition and management.

Cazenave acknowledged that MiCA may “require some adjustments to mitigate new or emerging risks going forward.” She also emphasized the importance of regulatory collaboration.

“International work, to which ESMA is contributing, is also important to ensure that appropriate safeguards are in place not only in the EU but also globally to protect financial stability. We stand ready to provide insights and support to EU co-legislators on those matters,” Cazenave said.

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