What has happened?
The European Commission and the Council of the European Union have adopted a joint statement on stablecoins, stating that they should not come into operation until the legal, regulatory and oversight challenges and risks they pose have been addressed.
What does this mean?
According to the statement, stablecoins may present opportunities in terms of cheap and fast payments, especially cross-border ones.
However, they also pose multifaceted challenges and risks in respect of consumer protection, taxation, privacy, cyber security and operational resilience, money laundering, terrorism financing, market integrity, governance and legal certainty.
Concerns are also amplified are stablecoins that could have a global potential and "new potential risks to monetary sovereignty, monetary policy, the safety and efficiency of payment systems, financial stability, and fair competition can arise".
Global stablecoins projects and arrangements should therefore not "begin operation in the European Union until the legal, regulatory and oversight challenges and risks have been adequately identified and addressed".
The Commission and Council also said that they would "tackle the challenges raised by these initiatives" based on an EU common understanding and co-ordinated approach.
"These initiatives should not undermine [the] existing financial and monetary order as well as monetary sovereignty in the European Union," the two bodies said.
The statement also called for legal clarity about the status of stablecoins and invited entities that intend to issue them in the EU to give "full and adequate information urgently" to allow for a proper assessment against the applicable rules.
"Tackling the challenges raised by 'global stablecoins' requires a co-ordinated global response. The risks raised by 'stablecoin' arrangements should be subject to clear and proportionate regulatory and oversight frameworks," the statement said.
As noted by the European Central Bank (ECB) recently, the Commission and the Council also commented that the emergence of stablecoins shows that payment arrangements need to evolve to meet market and consumer demand for fast, convenient, efficient and inexpensive payments, especially cross-border ones.
The two bodies also welcomed the move by the ECB and other central banks and national competent authorities to explore further the ongoing digital transformation of the payment system and the consequences of initiatives such as stablecoins.
"We welcome that central banks in cooperation with other relevant authorities continue to assess the costs and benefits of central bank digital currencies as well as engage with European payment actors regarding the role of the private sector in meeting expectations for efficient, fast and inexpensive cross-border payments," the Commission and the Council concluded.
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.