During a hearing this Monday in Brussels, Christine Lagarde spoke of wanting to move on to new rules for a cryptocurrency called Mica II.
On Monday, Christine Lagarde, President of the European Central Bank (ECB), held a second hearing before members of the European Parliament of the Committee on Economic and Monetary Affairs (Econ) in the European Parliament in Brussels.
There are currently two texts aimed at regulating cryptocurrencies (Mica for “Crypto Asset Markets” currently being discussed) and TFR (to regulate the transfer of funds).
During the hearing, MEP Aurora Laluc asked Christine Lagarde about the impact of crypto disruptions on financial stability, as well as the links “between regulated and unregulated finance.”
“Crypto assets and decentralized finance could pose a real risk to financial stability given the rapid growth in services and crypto assets,” Christine Lagarde said during this hearing. “For now, links between crypto assets and traditional finance remain very limited. The European Systemic Risk Board wants to quickly introduce the regulation of crypto assets, which everyone knows as Mica,” added the latter, who called her Mica I.
Mica I is not expected to be implemented until 2024. “That’s a long way off when you think about the speed at which market values are evolving. We wanted to go in the direction of those who have the desire to regulate these assets,” Christine Lagarde said.
“What about Mica II?”
So the latter asks this question: “What about the Mica II?” After thanking MEPs for their work on Mica I, the ECB President believes that Mica I has a “too narrow” definition of crypto asset regulation, calling for consideration of a new rule called Mica II.
What will this regulation be? Christine Lagarde first mentions the risk of relationships with financial institutions and their exposure to crypto assets.
“Mica II should regulate the activities of crypto-assets that issue loans. There is also the problem of decentralized finance which focuses on financial intermediaries, and where there is no such financial intermediary, the legislation does not apply, this is for bitcoin, which Mica I will not cover. We hope that Mica II will take this into account. Mica II should regulate issues of crypto assets when there are no identifiable issuers, as in the case of bitcoin,” Christine Lagarde clarifies.
For the President of the ECB, Mica II will have “broader scope” to regulate “this uncharted territory that puts consumers at risk.”
Christine Lagarde explained last month that cryptocurrencies are “worthless” in the Netherlands. At the same time, the institution published a very critical note towards the sector.
“The nature and size of crypto asset markets are rapidly changing and if current trends continue, crypto assets will pose risks to financial stability. If the relationship between fiat crypto assets and the traditional financial sector has developed significantly, the interconnections and other contagion channels remain quite weak for now,” the ECB believes.
The institution said it is very critical of two areas: platforms that allow investors to achieve record leverage and those that offer loans in decentralized finance.