EU Securities Watchdog Warns of Crypto Risks to Financial Stability
The European Union’s securities watchdog has warned that problems in the cryptocurrency industry could pose risks to broader financial stability in the future as the sector grows and ties between it and traditional financial markets increase. The European Securities and Markets Authority (ESMA) issued this caution as U.S. economic policies continue to roil global markets and U.S. authorities look to remove some barriers between crypto and traditional banking sectors.
“EU financial markets are, as we speak, under severe strain coming from broader political and geopolitical developments,” ESMA executive director Natasha Cazenave said in a speech to the European Parliament. While stock markets have experienced turbulence following U.S. President Donald Trump’s announcement of tariffs last week, leading to a sharp drop in crypto prices, asset prices had recovered some losses by Tuesday.
“Crypto-assets markets are still comparatively small. However, in the current market environment, turmoil even in small markets can originate or catalyse broader stability issues in our financial system,” Cazenave warned. The ESMA has repeatedly highlighted the risks associated with crypto and emphasized the need for continued close monitoring of the sector.
Currently, funds focused on crypto make up less than 1% of the EU fund universe, and 95% of EU banks do not engage in crypto activities, according to the ESMA. The watchdog noted that while risks to financial stability from crypto are not yet significant, they require ongoing scrutiny.
The ESMA’s warning comes as the U.S. is easing crypto regulations, with Trump – whose family is developing a crypto business – calling for reduced regulatory oversight. U.S. regulators have made it easier for banks to engage in crypto-related activities. However, the U.S. Justice Department recently announced it is disbanding its National Cryptocurrency Enforcement Team.
A potential run on a stablecoin – a type of cryptocurrency typically pegged to the dollar – could impact the price of financial assets used to back it, the ESMA warned, with potentially wider market consequences.
