Circle Warns EU That "Distributed Ledger" Reforms Are Too Slow, Activity May Flow to the United States

Stablecoin issuer Circle submitted feedback on March 20 regarding the European Commission’s proposed Capital Markets Union plan, stating that the plan is a “meaningful step” toward modernizing the capital markets, but significant gaps remain in scalability, regulatory framework, and settlement rules. Circle specifically warned that if the EU fails to accelerate reform outside the broad legislative timetable, related market activities may shift to the United States.

Circle’s DLT Pilot Reform Proposals: From Static Limits to Adaptive Frameworks

Circle generally supports the proposed changes to the EU Distributed Ledger Technology (DLT) pilot scheme, including expanding the scope of eligible assets and increasing transaction volume thresholds. However, it believes that current restrictions still suppress market liquidity and institutional participation.

Four Core Reform Recommendations Proposed by Circle

Introduce an Adaptive Threshold Mechanism: Dynamically adjust rule limits based on market conditions instead of relying on periodic legislative updates, preventing long-term disjunctions between market conditions and regulatory frameworks.

Clarify the Path from Pilot to Permanent Rules: Provide market participants with a clear timetable for transitioning from the pilot phase to a formal regime, reducing institutional barriers caused by regulatory uncertainty.

Allow Crypto Service Providers to Offer Settlement Accounts: Currently, only banks and Central Securities Depositories (CSDs) are permitted to provide settlement accounts. Circle argues that this restriction adds friction and complexity, and calls for opening access to licensed crypto service providers.

Accelerate Reforms Independent of the Legislative Package: While awaiting comprehensive legislative review, empower regulators to take quicker action on specific technical issues.

The Role of Stablecoins in Securities Settlement: Potential Risks of Excluding “Important” Tokens

In its submission, Circle focused on the application of MiCA (Markets in Crypto-Assets Regulation) compliant stablecoins in securities cash settlement. While welcoming the EU’s proposal to recognize electronic money tokens (EMTs) for cash settlement, it warned that the clause in the current draft allowing only “important” tokens to participate presents two core issues: first, it may effectively exclude a large number of euro-pegged stablecoins; second, such exclusion could slow the market adoption of euro stablecoins and weaken the competitiveness of the EU’s stablecoin ecosystem.

Regarding regulatory scope, Circle advocates narrowing the European Securities and Markets Authority’s (ESMA) direct oversight to large cross-border firms, while smaller institutions should remain under national regulators to avoid overregulation and increased compliance costs. Circle also calls for clearer rules on the use of stablecoins as collateral, noting that the US and UK are already implementing similar measures.

Frequently Asked Questions

Why is Circle concerned about the slow pace of EU DLT reforms?
Circle believes that the current EU DLT pilot scheme’s static limits and lengthy legislative update cycles cannot keep pace with the rapidly expanding tokenization market. If reforms lag further, institutional investors may choose to operate in markets like the US, where regulations are clearer and on-chain infrastructure is more developed, leading to capital outflows from the EU.

What is the DLT pilot scheme, and what does it mean for the European stablecoin market?
The EU DLT pilot scheme is a regulatory framework allowing trading and settlement of financial instruments on distributed ledger technology, currently in a trial phase. Circle urges expanding the scope of eligible assets, increasing transaction thresholds, and establishing clear pathways to permanent rules so that institutional investors can confidently commit long-term to the tokenization market.

Why is allowing crypto service providers to offer settlement accounts so important to Circle?
Under the current framework, only banks and CSDs can provide cash settlement accounts for DLT platform transactions. Circle believes excluding crypto service providers increases friction and operational complexity, and limits issuers like Circle from directly participating in European capital market settlement infrastructure.