ECB chief Lagarde: Crypto and Defi could pose "a real risk to financial stability

Christine Lagarde, President of the European Central Bank (ECB), says cryptoactive assets and decentralized finance (defi) can pose a real risk to financial stability. It has several regulatory proposals to amend the European Markets Act in the area of cryptoactive regulation (MiCA).

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Lagarde on the regulation of cryptocurrencies

ECB President Christine Lagarde spoke on cryptocurrency regulation at Monday's hearing of the European Parliament's Committee on Economic and Monetary Affairs.

We believe that crypto assets and decentralized finance (defi) can pose real risks to financial stability.

"This would be the case, in particular, if the rapid growth of cryptoactive markets and services continues… and the links with the traditional financial sector and the wider economy are strengthened," the ECB chief added. It is possible that the words should have sounded rather preventive, because she later added:

"At the moment, the links between private sector crypto assets and traditional finance are still limited - for now."

Lagarde went on to comment on the Crypto Asset Market Regulation (MiCA). She emphasized that the European Systemic Risk Board (ESRB), chaired by it, "supports the need for rapid adoption and implementation" of MiCAs.

The ECB chief noted that she was encouraged by the progress of the MiCA. However, she added that, according to her best estimate, it would not be introduced until 2024, which, she emphasized, "is still a long way off". Nevertheless, he sees certain things in him regulatory gaps todaysuch as DeFi, which it believes could represent real a new threat to global financial stability. Much more than the traditional cryptocurrencies themselves, which she said in September last year did not consider them currencies, but only speculative assets.

Lagarde then proposed some additional provisions to the current MiCA bill. With reference to the bill with additional provisions, which he calls MiCA2. explained that MiCA2 "should address the risk of interconnection with respect to financial institutions' exposure to crypto assets."

It should also "fully cover decentralized finance (defi)" and regulate crypto staking and lending activities, she said.

"MiCA II should regulate the activities of inserting and lending cryptoactive assets, which are definitely increasing.

This should be the case precisely because the following types of transactions have the greatest risk of fraud:

"Innovation in these unexplored and unexplored sectors threatens consumers, where inadequate regulation often involves fraud, completely illegitimate claims, and very often speculation and criminal behavior."

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