Fragmented Stablecoin Laws Boost Compliance Costs and Favor Big Players

Stablecoin laws across major global jurisdictions remain fragmented, creating both challenges and opportunities in the rapidly evolving digital asset landscape. While regulatory frameworks in the European Union, the United States, and Hong Kong have established clear guidelines for stablecoin operations, their differences are significant enough to limit cross-border usability and increase compliance burdens for issuers [1].

The European Union’s Markets in Crypto-Assets (MiCA) allows non-bank entities to issue stablecoins under the oversight of the European Banking Authority. The U.S. GENIUS Act, by contrast, restricts issuance to banks or federally licensed entities. Hong Kong’s newly finalized Stablecoin Ordinance requires licensing by the Hong Kong Monetary Authority and imposes stringent qualification criteria. These distinct approaches mean that stablecoin issuers must navigate multiple compliance regimes, including separate legal entities, audits, and governance models, which add operational complexity and cost [1].

Udaibir Saran Das, a Bretton Woods Committee member, explained that these diverging laws generate "operational friction" through inconsistent reserve requirements, custody arrangements, and customer due diligence measures. Such disparities favor large, well-capitalized stablecoin issuers, which can afford the high compliance costs, while smaller players are likely to be driven out of the market or acquired [1]. Krishna Subramanyan, CEO of Bruc Bond, highlighted this "compliance asymmetry," noting it could lead to market consolidation and limit innovation over time [1].

The lack of alignment also raises questions about regulatory intent. Subramanyan argued that jurisdictions are using stablecoin rules as tools of economic diplomacy, seeking to attract capital and technological leadership. While Hong Kong, the UAE, and Singapore have introduced frameworks that promote adoption, they remain distinct in their licensing processes and compliance expectations [1].

However, pressure for coordination may increase as stablecoins integrate more deeply into global financial systems. Subramanyan predicted that as cross-border transactions rise, the risk of instability and externalities will drive a push for alignment. Das added that establishing shared supervisory colleges and anti-money laundering protocols is both necessary and feasible, though complex [1].

The question remains: which regulatory model will ultimately prevail? Das suggested that GENIUS, while not overriding existing laws, could influence global standards due to its structured approach to reserves and redemption rights. Subramanyan noted that banks and payment systems tend to adopt the highest regulatory standard for cross-border operations, meaning Hong Kong’s conservative approach could shape global norms despite its limited number of licenses [1].

In the short term, however, fragmentation is likely to persist. Without a unified regulatory framework, regulatory arbitrage and consolidation are expected to dominate the stablecoin landscape, with smaller firms struggling to compete under the weight of divergent compliance requirements [1].

Source: [1] Stablecoin laws aren’t aligned — and big fish benefit (https://cointelegraph.com/news/stablecoin-laws-arent-aligned-big-fish-benefit?utm_source=rss_feed&utm_medium=rss&utm_campaign=rss_partner_inbound)