EU Watchdog Plans to Put Leverage Caps for Trading of Cryptocurrencies

EU regulators continue to work on new measures in order to establish new rules for the crypto industry and protect the interest of retail players. As per the latest development, European regulatory authorities are looking to curb leveraged bets on digital assets by introducing limits for exchanges, investment funds, etc.

In a statement on Thursday, May 25, the EU watchdog said that it is working to stop shocks that would jeopardize the financial stability elsewhere. The European Systemic Risk Board made several recommendations ranging from asking all crypto firms to submit regular reports as well as introducing specific rules for some of the biggest players in the space. In its report, the ESRB said:

“Systemic risks could arise quickly and suddenly. If the rapid growth trends observed in recent years were to continue, crypto-assets could pose risks to financial stability.”

Thus, they have proposed a few changes to the recently passed MiCA regulations such as “introducing leverage limits for investment funds exposed to crypto-assets”. Additionally, the ESRB also called for limiting the crypto firm’s ability to lend tokens to its clients, which has been one of the popular ways of making high-leveraged bets. Furthermore, the ESRB asked for setting up high collateral requirements for distributed finance products and stablecoins.

EU And Its MiCA Laws

This development comes just 10 days after the EU Council approved the Markets in Crypto-Assets (MiCA) legislation. The member states of the EU and the European Parliament have collectively adopted MiCA rules which make sure that crypto businesses seek authorization from the EU to serve customers within the bloc.

Additionally, these businesses should also comply with protections to prevent issues of money laundering or terror financing. The EU has come up with MiCA rules finally after a major shakeout in the crypto space and some high-profile collapses happening last year.

The recent recommendations from the ESRB are not bindings but rather shall inform the EU’s future work on the new versions of its crypto assets regulation (MiCA).