Entity-level stablecoin rules leave non-bank group risks exposed
A Financial Stability Institute study of stablecoin regimes across the EU, Hong Kong, Singapore, the UK, and the US shows that activity limits apply only to issuing entities, leaving non-bank groups exposed to contagion risks.
Two issuers dominate USD 320 billion market
The stablecoin market has plateaued at USD 300 billion to 320 billion, with two issuers accounting for 90 percent of global market capitalization.
The Financial Stability Institute analysed regimes across the European Union, Hong Kong, Singapore, the United Kingdom, and the United States.
While all five jurisdictions mandate par-value redemption and reserve backing, core rules diverge on key safeguards.
The European Union and the United States allow self-custody of reserve assets under strict segregation, whereas Singapore prohibits it and the United Kingdom caps intragroup custody at 20 percent.
Furthermore, the European Union bans redemption fees except during stress events, whereas Hong Kong, the United Kingdom, and the United States permit issuers to charge operational costs.
The non-bank group supervisory void
Non-core activities such as lending, staking, and trading face varied treatment.
Singapore and the United States restrict non-banks to closed activity lists, while the European Union, Hong Kong, and the United Kingdom require separate licenses.
Crucially, restrictions bind only the issuing entity.
While banks operate under consolidated supervision, non-bank issuers can bypass activity limits by relocating riskier operations to group affiliates, leaving stablecoin reserves vulnerable to contagion.
Entity ring-fencing offers false comfort
Regulating issuers as isolated entities ignores the realities of crypto conglomerates.
Without group-level supervision, activity limits are easily evaded by relocating risky operations to sister affiliates.
Supervisors must close this structural gap before contagion triggers a run on reserves.