ESRB publishes report on systemic risks from crypto-assets and issues recommendation on stablecoins

The European Systemic Risk Board (ESRB) has today published a report on three issues central to the crypto-asset ecosystem: stablecoins, crypto-asset investment products and multi-function groups. In particular, the report emphasises the risks stemming from stablecoins issued jointly by EU and non-EU entities.

Global stablecoin market capitalisation has more than doubled since the ESRB’s May 2023 report on crypto-assets and decentralised finance. This growth is partly driven by US crypto policies promoting the adoption of US dollar-denominated stablecoins. Stablecoins and traditional finance are increasingly intertwined, including through reserves backing their pegs held at commercial banks. Accordingly, the report emphasises the need to ensure that eligible reserve assets in the EU are of high-quality and liquid.

The report also notes that crypto-asset investment products are becoming increasingly accessible to institutional and retail investors, as part of the industry’s growing integration into mainstream finance.

In multi-function groups, crypto-asset products and services are offered by entities belonging to the same group as other financial and non-financial firms. Such groups may operate with opaque corporate structures and engage in cross-border regulatory arbitrage. This can pose challenges for effective supervision, particularly when the groups are based outside the EU. The report therefore calls for formal supervisory cooperation mechanisms and group-level reporting requirements.