What has happened?
The Council of the European Union has issued a draft joint statement from the Council and the European Commission on stablecoins, noting that no initiatives should start in the EU until legal and regulatory challenges have been addressed.
What does this mean?
The draft statement acknowledges that "technological innovations" can result in great economic benefits for the financial sector, and stablecoins may present opportunities in terms of cheap and fast payments, especially cross-border ones.
However, stablecoins also pose "multifaceted challenges and risks", including in respect of consumer protection, privacy, taxation, cyber security and operational resilience.
"When a stablecoin initiative has the potential to reach a global scale, these concerns are likely to be amplified and new potential risks to monetary sovereignty, monetary policy, the safety and efficiency of payment systems, financial stability, and fair competition can arise," the draft statement said.
Further, global stablecoin projects should not start to operate in the EU until all of the legal, regulatory and oversight challenges are identified and addressed.
Legal clarity about the status of stablecoin arrangements should also be obtained.
For example, according to the two EU institutions, some recent global projects provided only sparse information on how they intended to manage risks and operate their business.
"This lack of information makes it very difficult to reach conclusions on whether and how the existing EU regulatory framework applies," the note said.
The draft statement also called for a co-ordinated global response to tacking the challenges raised by global stablecoins, arguing that the risks they pose should be subject to "clear and proportionate regulatory and oversight frameworks, established on a sound evidence base", and based on principles that would apply to all stablecoins.
The Council and the Commission also said that they are willing to act swiftly, co-operating with the European Central Bank, with national authorities as well as with the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority.
This co-ordinated approach should include consultation and development of the evidence base before potentially developing new legislation for a common EU approach to cryptoassets, including stablecoins.
"All options should be on the table, including any measures to prevent the creation of unmanageable risks by certain global stablecoins," the statement said.
The draft statement also notes that the emergence of stablecoins highlights the importance of continuous improvements to payment arrangements to meet market and consumer expectations.
What happens now?
The draft statement came as an annex to a note from the Council to its presidency and was agreed by the Financial Services Committee.
It will now be submitted to the Council's Permanent Representatives Committee for approval at the Council's (ECOFIN) meeting on 5 December.
If you want to take advantage of blockchain's huge potential and disruptive impact, while keeping track of ever-developing regulatory and legal requirements, visit our Hogan Lovells Engage Blockchain Toolkit.