NYDFS and EBA Forge Transatlantic Pact on Stablecoin Regulation

In brief

The NYDFS and EBA said they are committed to sharing information that could help police stablecoins under memorandum of understanding.

While that includes promptly flagging market meltdowns, the regulators also plan to share insights on criminal and civil investigations.

The coordination comes as officials from Europe’s central bank flag the “risk of runs” as a weakness that stablecoins are exposed to.

New York’s preeminent crypto regulator has charted a transatlantic path toward comprehensive stablecoin rules, aligning regulatory efforts on Tuesday with the European Union.

In a 22-page memorandum of understanding, the New York Department of Financial Services and European Banking Authority detailed procedures intended to facilitate the exchange of supervisory and confidential information as it relates to the $314 billion sector.

In a statement, the NYDFS described the measure as an effort to enhance oversight, identify market trends and risks, and promote market integrity. The regulator, which has long upheld strict standards under its notoriously strict BitLicense regime, noted that the scope of the initiative is limited to actions companies under its supervision may take.

The agreement reflects not only how stablecoins are making it easier for capital to flow across borders but also how they are blurring the edges between agencies in distinct jurisdictions—including how the regulators respond in the event of a crisis.

In the case of an emergency situation, such as the “serious operational or financial difficulties of supervised entities,” the NYDFS and EBA will attempt to flag issues to each other as quickly as possible, while coordinating responses in their respective backyards.

If something catches fire, that means the regulators are committed to preventing each other from being blindsided by issues originating from across the Atlantic. Upon request, authorities are committed toward sharing information regarding civil or criminal investigations.

For example, a stablecoin could “depeg,” trading at a discount to the currency that it’s trying to represent. In 2023, Circle’s dollar-pegged USDC stablecoin briefly dropped as low as 87 cents after the firm confirmed it had exposure to the implosion of Silicon Valley Bank.

The coordination comes as European Central Bank officials adopt a cautious tone. Last week, board member Isabel Schnabel warned that stablecoins are “subject to the risk of runs” and threaten to erode Europe’s monetary sovereignty and economic control.

“Today, virtually all stablecoins in circulation are denominated in dollars,” she noted at a conference in South Korea. “Other currencies [are] playing a negligible role.”

Notably, the agreement between the NYDFS and EBA isn’t legally binding. Still, in the name of protecting consumers and markets, NYDFS Acting Superintendent Kaitlin Asrow described international coordination as “essential for the digital asset space” in a statement.