Christine Lagarde, president of the European Central Bank (ECB), revealed that digital assets and decentralized finance (DeFi) pose real risks to financial stability if not regulated. The ECB chief recommended supplementing the Market in Crypto Assets Regulations (MiCA) bill awaiting implementation.

Lagarde Calls for Crypto Regulation

The ECB president touched on the issue of cryptocurrency regulations in Europe on Monday at the European Parliament’s Committee on Economic and Monetary Affairs discussion. Lagarde noted that:

“The committee is working to address the impact of crypto-assets and their risks to economic stability.” “The EU parliament has decided that digital assets and DeFi pose a potential risk to the continued stability of the economy.”

Lagarde added that if the rapid growth of cryptocurrency remains unchecked, the traditional financial institutions will lose their grip on the economy, thereby causing more harm to the sector. The EU must intensify regulations to protect the broader economy and the traditional financial sector.

However, the ECB chief noted that the relationship between the crypto-asset industry and traditional finance is currently limited. However, it should not be left to chance as the digital asset is disruptive innovation.

Lagarde has, on multiple occasions, revealed her opinion of the crypto industry. She is among top EU officials regularly clamoring for regulations on crypto assets.

The EU parliament has previously voted to ban Bitcoin mining and halt cryptocurrency issuance and use within the bloc. However, the EU has yet to achieve broader implementation of regulations.

ECB’s Chief Discusses MiCA Bill

Regarding the Market in Crypto Assets Regulation (MiCA) bill, Lagarde stressed that the European Systemic Risk Board (ESRB) supports the MiCA bill’s quick implementation. It is worth noting that Lagarde is also the head of the ESRB.

Furthermore, Lagarde expressed her satisfaction with the progress of the MiCA bill. However, she added that the implementation will take a long time, probably in 2024. She stressed that the time before implementation would be long.

The ECB president suggests some additions to complement the current MiCA draft legislation while referring to the proposed update as MiCA2. According to her, MiCA2 aims to address the issue of the interconnectedness of financial institutions and their exposure to cryptocurrency.

Going by the provisions of MiCA2, Lagarde calls for a framework that could bar financial institutions from dealing with crypto assets.

Moreover, the MiCA2 will also cover the operation of DeFi platforms and the regulation of crypto stakings and lending, resulting in a massive loss of funds. The ECB chief noted that the current MiCA bill failed to capture Bitcoin but hopes EU legislators will address it in MiCA2.

Lagarde is concerned about the broader implications of cryptocurrency to the EU economy when the bloc is battling high inflation. Lagarde has since been an anti-crypto going by her previous remarks about digital assets. In addition, the crypto market is passing through a rough patch that has seen major crypto assets lose a significant part of their value.