ESRB Warns Of Systemic Risks From Stablecoins, Crypto-Investment Products, And Multi-Function Groups

The European Systemic Risk Board (ESRB), which is responsible for collecting and analyzing data from national central banks, supervisors, and the European Union agencies about risk in the EU financial system, released a major report highlighting the growing macroprudential implications of crypto-asset markets within the EU. The report identifies three interconnected sources of systemic vulnerability — stablecoins, crypto-investment products, and "multi-function groups" — and calls for enhanced prudential coordination, stronger enforcement under the Markets in Crypto-Assets Regulation (MiCA), and closer supervisory cooperation across the EU.

Together, these findings signal a decisive shift toward macroprudential oversight of the crypto-financial sector, with the ESRB positioning itself at the center of a new phase of EU regulatory architecture.

1. Stablecoins: Fragmented Oversight and Cross-Border Contagion

According to the ESRB, global stablecoin capitalization has doubled since 2023, reaching roughly $300 billion, or about 7.5% of the global crypto market. Nearly all this growth is driven by USD-denominated instruments, which now account for 99% of total volume, supported by US policy initiatives, such as the Guiding and Establishing National Innovation for U.S. Stablecoins Act (2025) that links stablecoin reserves to US Treasuries.

The ESRB notes that the dominance of US-backed tokens reflects both the absence of credible euro-denominated alternatives and the emergence of complex cross-jurisdictional issuance models that fall outside of MiCA's scope. These "multi-issuer" structures, often involving affiliated-EU and non-EU entities, create new fungibility and redemption risks that are not yet adequately covered by existing EU law.

The report also warns that non-MiCA-compliant stablecoins such as Tether (or USDT) and DAI continue to circulate widely within the EU, often through unauthorized platforms or under the guise of "reverse solicitation."

In practical terms, MiCA-authorized crypto-asset service providers (CASPs) will need to terminate all services involving noncompliant stablecoins, including exchange, custody, transfer, and lending activities, as required under Article 94 of MiCA. Stablecoin issuers established in the EU should ensure complete legal and operational separation from non-EU affiliates and maintain reserve assets locally within the EU under independent audit arrangements.

National competent authorities are expected to coordinate enforcement actions to ensure the consistent application of MiCA's withdrawal and prohibition measures. The ESRB also recommends that issuers diversify reserve deposits across multiple EU credit institutions to mitigate concentration and uninsured deposit risks, which it identifies as a source of potential systemic stress.

At a prudential level, the ESRB cautions that large-scale shifts of bank deposits into stablecoins could reduce liquidity available for real economy lending. Therefore, it suggests that major e-money token issuers should explore reserve concentration limits and enhanced liquidity monitoring.

Finally, the ESRB encourages the development of euro-denominated stablecoins, tokenized bank deposits, and the digital euro as strategic tools to strengthen European monetary sovereignty and reduce reliance on USD-backed instruments. MiCA-regulated entities should, therefore, expect closer supervisory attention to reserve composition, third-country linkages, and cross-border fund flows, with MiCA articles 40, 58, and 94 set to be enforced rigorously by the European Securities Markets Authority (ESMA) and national regulators.

2. Crypto-Investment Products: Concentration, Transparency, and Reporting

The market for crypto-investment products (CIPs) — which includes exchange-traded products and tokenized investment vehicles — has expanded rapidly, reaching $235 billion by mid-2025, up from $130 billion at the end of 2024. Traditional financial institutions have become increasingly central to this ecosystem, acting as custodians, depositaries, and structurers of crypto-linked instruments.

The ESRB observes that market concentration is high, with just three custodians collectively responsible for roughly 60% of all managed assets. It also flags persistent operational and cyber vulnerabilities, given the high degree of institutional interconnection across the custody and trading chains.

At the same time, data gaps remain significant, particularly regarding crypto exposures and the leverage of nonbank financial institutions.

To address these risks, firms are expected to increase transparency throughout custody chains, including sub-custodian and cross-border counterparties. Upcoming regulatory reforms are likely to extend prudential reporting frameworks (e.g., Financial Reporting, Common Reporting) to include crypto exposures and stablecoin holdings, while the Markets in Financial Instruments Directive, Undertakings for Collective Investment in Transferable Securities, and Alternative Investment Fund Managers Directive prospectuses will need to clearly identify the jurisdiction and nature of crypto-asset exposures.

Under the Digital Operational Resilience Act (DORA), custodians and service providers will also be required to strengthen business continuity planning, cyber resilience, and information technology (IT) risk management.

Entities involved in the custody or structuring of CIPs should therefore prepare for enhanced reporting requirements on leverage, counterparty risk, and operational resilience — consistent with emerging ESRB and ESMA expectations.

3. Multi-Function Groups: The Road to "MiCA 2.0"

The ESRB devotes particular attention to multi-function groups (MFGs) — vertically integrated crypto conglomerates that combine issuance, exchange, custody, and payment services under common ownership, often spanning several jurisdictions.

According to the report, these groups could become systemically significant, due to their size, vertical integration, and opacity. The ESRB highlights inherent conflicts of interest between intragroup functions (e.g., between exchange and custody activities); a lack of transparent governance and intragroup funding disclosure; and the absence of consolidated supervision for nonbank crypto groups.

The ESRB recommends establishing a group-level supervisory framework for such MFGs, modeled on the existing financial conglomerate regime. This would likely include consolidated capital and liquidity reporting, intragroup exposure disclosures, and formal identification of critical functions such as IT, compliance, and liquidity management. Supervisors may also impose functional separation ("firewalls") between intragroup activities to mitigate contagion and conflicts of interest.

Enhanced coordination among ESMA, the European Banking Authority (EBA), the European Central Bank (ECB), ESRB, and national authorities will be essential to monitor large cross-border crypto conglomerates. MFGs operating within or marketing to the EU should therefore begin mapping their group structure and internal relationships in anticipation of group-level prudential oversight under a potential "MiCA 2.0" regime.

Regulatory Outlook and Supervisory Trends

The ESRB's 2025 report represents a clear turning point in EU crypto regulation, marking a transition from micro-level conduct oversight toward systemic and prudential regulation.

Looking ahead to 2026, several supervisory trends are expected to shape the EU landscape: the strict enforcement of MiCA obligations across member states; new ESMA and EBA guidance on cross-border stablecoins and offshore reserve management; the integration of crypto exposures into prudential reporting frameworks; and the emergence of consolidated supervision for large crypto conglomerates.

The ESRB also calls for greater alignment between MiCA, DORA, and the ECB's digital euro initiative to strengthen systemic stability and regulatory coherence.

Action Points

In light of these developments, stablecoin issuers should reevaluate their cross-border issuance and reserve structures. CASPs must ensure the complete exclusion of non-MiCA stablecoins and update their reverse solicitation policies. Financial institutions and custodians should begin preparing for enhanced prudential and transparency obligations, while multi-function groups are advised to strengthen governance, intragroup documentation, and compliance frameworks ahead of forthcoming consolidated oversight.

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