The global financial system faces a pivotal moment as two major regulators sound alarms over crypto’s unchecked growth. The European Securities and Markets Authority (ESMA) warns that digital assets could destabilise markets, while Bank of England Governor Andrew Bailey, a long-time crypto critic, prepares to lead a key global regulatory body. With crypto’s ties to traditional finance deepening, regulators are scrambling to prevent the next crisis.
Bailey Takes Helm of Global Financial Stability Board
Andrew Bailey, known for his skepticism toward cryptocurrencies, will chair the Financial Stability Board (FSB) starting July 1. The Switzerland-based FSB, created after the 2008 crisis, coordinates global financial rules and monitors risks like crypto. Bailey’s unanimous election signals a cautious approach to emerging markets.
“Financial stability is being put to the test,” Bailey said in an FSB statement, stressing the need for collective action. His three-year term follows current chair Klaas Knot of the Dutch central bank. Bailey, who has led the Bank of England since 2020, previously headed the U.K.’s Financial Conduct Authority, a role that shaped his wary stance on crypto.
ESMA Warns Crypto’s Growth Threatens Market Stability
ESMA Executive Director Natasha Cazenave told EU lawmakers on April 8, 2025, that crypto’s rapid integration with traditional finance could spark systemic risks. Though crypto funds make up less than 1% of the EU’s $90 trillion financial sector, she warned that market turmoil could “originate or catalyse broader stability issues.”
Stablecoins, digital currencies pegged to assets like the U.S. dollar, pose a unique danger. A sudden mass withdrawal could destabilise their reserves, triggering wider panic. ESMA also flagged risks from speculative trading, corporate crypto adoption, and leveraged investments. “Continued close monitoring is essential,” Cazenave stressed.
Bailey’s Track Record
Bailey has repeatedly questioned crypto’s real-world utility. In 2024, he dismissed Bitcoin as “inefficient” for payments and doubted its role in finance. “It’s not taking off as a core service,” he said. Stablecoins, he argued, must meet “a high bar” for security before gaining approval.
He’s equally cautious about central bank digital currencies (CBDCs), warning a digital pound must not weaken commercial banks. His views could shape FSB priorities, though the body relies on consensus among 24 member nations. Still, his leadership may push global standards toward stricter safeguards.
EU Tightens Rules as U.S. Loosens Crypto Grip
The EU’s Markets in Crypto-Assets (MiCA) framework, enforced since December 2024, mandates strict reserve rules for stablecoins. ESMA doubled down in January 2025, urging exchanges to delist non-compliant tokens. These steps contrast sharply with the U.S., where regulators under President Trump have eased crypto restrictions.
For instance, the Justice Department disbanded its crypto enforcement team, encouraging banks to engage with digital assets. This transatlantic divide complicates global oversight. ESMA fears relaxed U.S. policies could expose EU markets to spillover risks, especially as crypto firms expand cross-border services.
Why Crypto’s Small Footprint Isn’t Reassuring
Though crypto’s direct impact remains limited, 95% of EU banks avoid it; its volatility and tech complexity heighten vulnerabilities. Tesla’s brief Bitcoin acceptance in 2021 showed how corporate adoption could backfire during price crashes. Similarly, crypto fund losses might ripple through retail investors.
ESMA’s 2023 report deemed crypto a minor threat, but surging adoption has shifted the calculus. “Risks could escalate faster than anticipated,” Cazenave warned. Bailey’s FSB will likely prioritise stress-testing crypto links to banks and insurers, aiming to curb contagion pathways.
Navigating a High-Stakes Balancing Act
Regulators now face a dilemma: stifle innovation or risk instability. Bailey’s FSB leadership and ESMA’s warnings underscore a preference for caution. However, divergent global policies like the U.S.’s permissive turn could undermine coordinated efforts.
For now, the EU’s MiCA rules set a blueprint for oversight. But as crypto evolves, regulators must adapt swiftly. “The stakes are too high to wait for a crisis,” Cazenave told lawmakers. With Bailey at the FSB helm, the world’s financial cops are doubling down on their watch.
