Circle challenges EU stablecoin reserve rules

TLDR

Circle, issuer of USDC and EURC, has formally asked the EU to soften MiCAs strict bank deposit reserve rules for stablecoins.

1. Circles consultation response criticizes MiCAs requirement that up to 60% of stablecoin reserves sit in commercial banks and proposes an alternative framework.
2. The company argues these rules increase bank credit risk and could push European users toward offshore stablecoins and exchanges that MiCA cannot effectively supervise.
3. The European Commission is reviewing MiCA, and leaks suggest officials may be open to adjustments, so stablecoin rules in the EU are not yet settled.

Confidence: high because the details come from Circles written feedback to the Commission and current MiCA review reporting.

Deep Dive

1. What Circle Is Challenging

On 3 Oct, Circle urged the European Commission to revise MiCAs rules for foreign stablecoins and mandatory bank deposits for issuers, in a targeted consultation on the regimes first review. Circle highlighted that only three of the 25 largest stablecoins are currently MiCA regulated and that it issues two of them, USDC and EURC. In its submission, Circle opposed MiCA provisions that require e money token issuers to keep 30% of reserves in commercial bank deposits, rising to 60% for significant tokens, and instead asked for a more flexible liquidity based standard, as summarized in this consultation coverage.

2. Why The Rules Are Contested

Circle argues that locking such a large share of reserves into commercial banks concentrates credit and counterparty risk in the banking system rather than reducing it. The firm notes that these deposits expose stablecoin holders to bank failures and stress, while limiting the ability to hold highly liquid, low risk assets like short term government securities. Circles feedback aligns with European Central Bank commentary that has also questioned rigid deposit minimums, and calls for minimum liquidity requirements instead of fixed bank percentages, highlighting that current rules may not best protect stablecoin users or financial stability.

3. Market And Regulatory Implications

Circle also defends multi issuance structures where a MiCA regulated EU institution and a foreign issuer jointly offer an international stablecoin, warning that banning this model could push Europeans toward unregulated offshore venues. It proposes a recognition regime where foreign issuers are supervised primarily in their home jurisdiction, subject to EU equivalence and European Banking Authority sign off, while EU licensed firms handle distribution. In parallel, regulators like ESMA are pushing to tighten restrictions on non compliant stablecoins, including custody and transfers, in proposals reported by CryptoSlate. Together, these debates will shape which stablecoins remain easily usable within the EU and on which terms.

Conclusion

Circles challenge to MiCAs bank deposit reserve rules puts a spotlight on the trade off between bank centered prudence and diversified, liquid reserve portfolios for EU stablecoins. The outcome of the EUs MiCA review will determine whether USDC, EURC and other major tokens operate under more flexible liquidity standards or remain tied to strict bank deposit percentages, which in turn will influence where European users choose to hold and trade stablecoins.