New Telegraph 
The European Union’s (EU) financial risk watchdog has called for urgent safeguards on stablecoins only partly issued in the bloc, echoing a warning from the European Central Bank (ECB), which is worried that their failure could induce a run on reserves, according to a Reuters report.
Stablecoins are a type of cryptocurrency designed to hold a steady value by being pegged to a reserve asset such as a currency or basket of assets. The EU has put in place one of the world’s strictest regimes on crypto assets but policymakers worry that issuers originating from outside the bloc enjoy easier regulation and could import financial risk.
“The General Board stressed that third country multi-issuer schemes – with fungible stablecoins issued both in the EU and outside – have built-in vulnerabilities which require an urgent policy response,” the European Systemic Risk Board, headed by ECB President Christine Lagarde, said in a statement. EU rules require stablecoins to be fully backed by reserves. Lagarde said the bloc should hold companies that issue stablecoins both in the EU and abroad to the same standards.
In “multi-issuer” schemes, an EU and a non-EU entity jointly issue stablecoins, and the strict EU regulation does not extend to the non-EU issuer, tilting the playing field. The main worry is that in the event of a run on the asset, investors will choose to redeem in the EU, since it has the strongest safeguards.
However, reserves held in the EU may not be sufficient to meet concentrated demand, creating a liquidity squeeze in the bloc and potentially forcing the ECB to respond. “Multi-function groups may operate under regulatory regimes which are much more lenient than for financial conglomerates, raising the question of divergent prudential standards,” the ESRB added.
Meanwhile, the ECB has picked a Portuguese startup, Feedzai, which is focused on Artificial Intelligence (AI), to help prevent fraud in its planned digital euro currency. According to Reuters, the contract with Feedzai, worth up to 237.3 million euros ($278.69 million), is one of several announced by the ECB recently to advance a project that it sees as key for the euro zone’s financial autonomy from the United States.
Under it, Feedzai and its subcontractor PwC will provide an AI model for scoring digital euro payments by their fraud risk, based on any deviation from a customer’s typical behaviour, interactions and history. This is aimed at helping payment service providers decide whether to approve a transaction in digital euros, essentially an exchange between electronic wallets backed by the central bank.
The four-year agreement, with an option to extend it to 15 years, has an estimated value of 79.1 million euros and a cap at 237.3 million euros. Four further digital euro contracts worth between 27.6 million euros and 220.7 million euros were awarded to other companies, including French IT consulting firm Capgemini . Under such framework agreements, the ECB won’t pay contractors until the project starts.
The central bank is still awaiting legislative approval for its digital euro, which it has pitched as a response to Visa and Mastercard’s dominance and to U.S. President Donald Trump’s promotion of stablecoins pegged to the dollar. It hopes to receive the goahead around the middle of next year, with a view to launching the digital currency in 2029. Registered in Portugal, Feedzai says it processes $8 trillion worth of payments every year for clients including Portuguese bank Novobanco and Abu Dhabi’s Wio Bank.
