NY Crypto Regulator Partners with EU on Stablecoin Oversight

New York and EU Forge Transatlantic Stablecoin Oversight Pact

New York’s leading cryptocurrency regulator has established a transatlantic framework for comprehensive stablecoin rules, aligning its supervisory efforts with those of the European Union.

A 22-page memorandum of understanding, signed Tuesday by the New York Department of Financial Services (NYDFS) and the European Banking Authority (EBA), outlines procedures designed to facilitate the exchange of supervisory and confidential information concerning the $314 billion stablecoin sector.

The NYDFS stated that the agreement aims to enhance oversight, identify market trends and risks, and promote market integrity. The regulator, known for its stringent standards under the BitLicense regime, emphasized that the initiative’s scope is confined to actions undertaken by companies under its direct supervision.

This accord underscores not only the increasing ease with which stablecoins facilitate cross-border capital flows but also the blurring lines between regulatory agencies in different jurisdictions. It also addresses how these regulators will coordinate their responses in the event of a crisis.

In emergency situations, such as “serious operational or financial difficulties of supervised entities,” the NYDFS and EBA will endeavor to promptly alert each other to emerging issues and coordinate their respective responses. This commitment aims to prevent regulators from being caught unaware by problems originating across the Atlantic. Upon request, both authorities are committed to sharing information pertaining to civil or criminal investigations.

For instance, a stablecoin could experience a “depeg,” trading below the value of the currency it is intended to represent. In 2023, Circle’s dollar-pegged USDC stablecoin briefly fell to 87 cents after the company disclosed its exposure to the collapse of Silicon Valley Bank.

This coordination arrives as officials at the European Central Bank adopt a cautious stance. Last week, board member Isabel Schnabel warned that stablecoins are “subject to the risk of runs” and pose a threat to Europe’s monetary sovereignty and economic control.

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

While the agreement between the NYDFS and EBA is not legally binding, NYDFS Acting Superintendent Kaitlin Asrow described international coordination as “essential for the digital asset space” in a statement, highlighting its importance for consumer and market protection.