Circle and Tether challenge EU MiCA bank deposit rules

Circle and Tether have challenged parts of the European Union’s Markets in Crypto‑Assets Regulation, arguing that rules that force large shares of stablecoin reserves into commercial‑bank deposits increase exposure to banking risk and could discourage non‑EU issuers from seeking authorization in the bloc. The complaints were submitted during the European Commission’s MiCA review consultation, which closed on Sept. 30.

Circle proposed a two‑step recognition regime under which the European Commission would assess whether a third country’s regulatory framework is equivalent to EU standards and the European Banking Authority would then recognize individual issuers. Under the proposal, recognized issuers would remain primarily supervised by their home regulators while distributing tokens in the EU through locally licensed firms, avoiding full EU authorization.

Circle noted that only three of the 25 largest stablecoins by market value-USDC, USDG and EURC-are currently regulated under MiCA, and that roughly 30 e‑money tokens have secured authorization since the framework took effect. The company also urged regulators to preserve multi‑issuance arrangements, where a MiCA‑authorized European entity co‑issues a globally circulating stablecoin with a foreign counterpart.

A central point of dispute is MiCA’s reserve composition rule. The regulation requires e‑money token issuers to hold at least 30% of reserves in commercial bank deposits, rising to 60% for tokens classified as significant. Circle proposed replacing the fixed deposit share with a broader liquidity standard, arguing that mandatory deposits concentrate credit and counterparty risk.

Tether’s chief executive, Paolo Ardoino, warned that forcing large stablecoin issuers to place substantial reserves in banks could create systemic vulnerabilities if those institutions failed or could not meet large withdrawals. Tether declined to seek an EU license in part because of the deposit requirement.

Circle also challenged a 35% cap on exposure to a single sovereign and a restriction that limits deposits with any individual bank to 1.5% of that lender’s total assets. Circle argued those limits could prevent dollar‑pegged stablecoins from holding high‑quality sovereign securities and could force large issuers to spread reserves across many banks, complicating liquidity management.

The European Banking Authority has flagged risks linked to third‑country multi‑issuer structures, noting that reserves, redemptions and other key functions can be located outside effective EU supervision. The EBA urged the Commission to consider tighter controls to address those risks.

The Commission’s MiCA review has closed and any amendments will depend on its assessment. For now, Circle’s recognition proposal is a submission to that review process; foreign issuers remain subject to the current MiCA requirements while Brussels decides whether to amend the rules.