Europe Faces Setback as Circle Flags Stablecoin Regulatory Conflict

TLDR

• Dual licenses may crush EU stablecoin innovation under MiCA-PSD2 clash.
• Circle warns of rising costs and firms exiting Europe’s crypto market
• EBA confirms double regulation despite MiCA’s goal of rule unity.
• Lawmakers urged to fix overlap before March 2026 disruption hits.
• Misaligned rules risk slowing euro stablecoin adoption and growth.

Stablecoin regulation in the European Union faces major disruption as dual licensing rules threaten market stability. Circle’s EU strategy director has raised concerns about conflicting frameworks that may burden crypto firms. With stablecoin adoption growing rapidly, unresolved regulatory issues now pose a risk to Europe’s digital finance ambitions.

MiCA and PSD2 Overlap Raises Compliance Costs

Conflicting interpretations of the Markets in Crypto-Assets (MiCA) regulation and the Payment Services Directive (PSD2) have triggered major industry concerns. Circle’s Patrick Hansen warned that from March 2026, firms may need two licenses for the same stablecoin service. This double requirement adds to compliance costs without increasing consumer protection.

The European Banking Authority confirmed that stablecoin custody and transfer fall under PSD2’s scope despite MiCA coverage. As a result, businesses must secure both a MiCA crypto license and a separate payment services license. This situation undermines MiCA’s purpose to unify rules for stablecoin regulation across the bloc.

The EBA provided a transition period until March 2026, during which enforcement of dual licensing will not apply. However, no permanent resolution has been adopted yet. Circle and others warn that firms may exit the market if rules remain unclear and costly.

Circle Warns of Market Retraction and Slower Adoption

Circle’s EU policy team emphasizes that overlapping rules could hinder the growth of euro-pegged stablecoins. Firms face €250,000 in minimum capital and rising compliance expenses. This could discourage service providers from continuing stablecoin-related activities in the EU.

The dual licensing model contradicts EU principles of legal clarity and proportionality. Stablecoin regulation was supposed to simplify digital asset operations, not complicate them further. If unresolved, these rules may reduce the competitiveness of the EU in global digital finance.

Jeremy Allaire, CEO of Circle, supports this assessment and has called for regulatory alignment. The firm already issues euro-backed stablecoins under MiCA and may face duplication of obligations. If providers scale down or exit, users might turn to unregulated alternatives instead.

Proposals Target Legislative Fix Before Deadline

Circle and other stakeholders recommend extending the transition period to at least 2027. This would offer time to introduce amendments that align MiCA and PSD3. Lawmakers must act before March 2026 to prevent market disruption.

One proposed fix involves modifying PSD3 to exempt MiCA-covered activities from additional payment licensing. Another solution includes integrating PSD2 payment functions directly into MiCA. Both aim to remove dual oversight and ensure stablecoin regulation remains streamlined.

The EBA’s guidance allows firms to reuse MiCA documentation for PSD2 license applications. While this reduces duplication, the underlying issue remains unresolved. Strong customer authentication and fraud reporting will still apply during the transition.

The next legislative window is crucial. EU regulators must align stablecoin regulation with digital growth goals or risk losing market momentum. If not addressed, this issue could weaken the euro’s position in digital assets.

The post Europe Faces Setback as Circle Flags Stablecoin Regulatory Conflict appeared first on CoinCentral.