Circle Seeks More Flexible EU Reserve Rule as USDC Oversight Nears

Circle is seeking more flexible European Union reserve rules for USD Coin (USDC) as a new significant-token designation brings its financial safeguards under direct EU supervision Nov. 12.

The European Banking Authority (EBA) classified USDC on Oct. 14 as the first significant e-money token among 45 notified under the European Union’s Markets in Crypto-Assets Regulation (MiCA). The designation gives the EBA responsibility for supervising the token’s own funds and reserve assets, its liquidity requirements, and its recovery and redemption plans.

Circle Internet Financial Europe SAS issues USDC in the EU, while Circle Internet Financial, LLC issues it in the United States. France’s Autorité de Contrôle Prudentiel et de Résolution (ACPR) will continue to oversee areas including governance and outsourcing. The division places specified financial safeguards under EU-level supervision while leaving other duties with the French regulator.

The 60% bank-deposit minimum for significant issuers is twice the 30% minimum for other e-money tokens. Circle asked the European Commission on Oct. 1 to replace the fixed share with a minimum asset-liquidity standard. It argued that holding a large share of reserves in bank deposits increases exposure to bank credit and counterparty risk.

The EBA has also called for a review of deposit minimums. Any alternative reserve assets would still need to support redemptions during periods of stress. Circle’s requested change has not taken effect, so the existing deposit requirement remains the standard for its EU issuer.

The reserve debate runs alongside Circle’s spending to distribute USDC. During the six months through June 30, Circle reported $1.395 billion in revenue and reserve income; distribution, transaction and other costs totaled $819.3 million. Circle recorded $655.3 million in distribution costs under its Coinbase agreements. The broader cost figure includes transaction and other expenses; it is not solely partner compensation.

Circle says sharing reserve income gives partners an incentive to expand USDC use while leaving funds for liquidity, compliance and infrastructure. “The more USDC a partner drives, the greater the share,” Circle Chief Commercial Officer Kash Razzaghi wrote.

The next scheduled change is Nov. 12, when the EBA begins its direct supervision of USDC’s EU issuer.