Stablecoins are covered by the EU’s Mica Crypto regulations, but we can see that “payments” using Stablecoins without any other ciphers are also subject to PSD2, the EU payments law. This is problematic as it means that MICA regulates Crypto Asset Service Providers (CASPS) that allow clients to pay mainstream. This is an important business that involves companies with additional capital in addition to CASP requirements. One of the goals of MICA was to encourage innovation. Therefore, this is not a desirable scenario.
This was not all the same view given that the law is unknown and that there are 27 different national regulators. Therefore, at the request of the European Commission, the European Banking Authority (EBA) has released its opinions on this topic. The legal reason for these requirements is that electronic money tokens (EMTS) (EU terminology for Stablecoins) is classified as “funds” under PSD2 in Europe.
Some exchanges may block the use of stable rocks for mainstream payments to avoid additional compliance. Alternatively, they may partner with a licensed payment provider. The third option is to comply with certain parts of the PSD2 law and apply for a license.
EBA offers some relief
EBA’s No Action Letter offers some relief, but could attenuate the mainstream use of stubcoins outside the crypto realm until the law changes. However, the EBA guidance provides some boundaries when PSD2 is applied.
The term “surgery” here is payment. Transactions that involve the use of Stablecoin or other funds to resolve cryptocurrency exchanges of another cryptocurrency or cryptocurrency transactions will not be considered payments that fall under PSD2. In other words, you don’t have to worry about additional PSD2 compliance for this type of transaction.
To explain this distinction: If you want to use crypto exchanges and send some stub coins to a friend, it is a payment that is eligible for PSD2. The Stablecoin balance I hold in the crypto exchange is also covered by PSD2.
Given the lack of legal clarity on this topic, the EBA has set a transition period until March 2, 2026, when cusps engaged in mainstream payments must register as PSPs and partner with PSPs or suspend payments for these types of payments. It suggests that state regulators should be deprived of enforcement on a temporary basis. Even if CASP has a payment license, some aspects of PSD2 are highlighted, while others should be argued.
Here are some aspects that I consider to be important:
Initiation of forwarding fraud, which involves strong customer authentication to access storage wallets and reporting accumulation calculations of their own funds.
Beyond these priorities, the EBA also addressed a long-term regulatory approach.
Revising legislative gaps
The EBA noted that it was undesirable to require entities to acquire multiple licenses, especially since one of the goals of the MICA crypto regulations in Europe was to promote innovation.
At the same time, EBAs want to ensure a level playing field, so payments made by any entity must receive the same protection. Therefore, it made two proposals to correct the situation in the long run. The first is to transpose the relevant clauses of PSD2 into MICA. Alternatively, work is underway with the new PSD3 law and can be addressed there. Another option is to give CASPS a free pass. This is what the EBA considers as undesirable from a consumer protection perspective.
Impact on Stablecoins
There are several takeaways from this result. Mainstream stubcoin transactions, including European legs, can become more expensive. This supports the view of some stablecoin skeptics that an important advantage of the equipment is the adjustment arbitrage. However, their positions do not recognize that they could become more efficient forms of payment, and their programmatic nature has not yet been fully utilized.
However, existing payment providers and banks do not have additional costs to process stubcoin.
Banks aside, this regulatory overlap is likely to increase the cost of mainstream stubcoin transactions using European components, and could hinder adoption. This offsets concerns raised by the European Central Bank (ECB) that the Trump administration’s promotion of stubcoins could threaten financial sovereignty. We have previously pointed out that mica regulations have several sovereign protection measures.
From an ECB perspective, this can be viewed as a double advantage. This could slow growth as they don’t support stubcoins. Additionally, it will increase the time to deploy CBDCs in central banks. However, if the issue of sovereignty is diluted, the urgency to the digital euro law will also decrease.
