European Banking Authority Proposes Strict Regulations for Stablecoin Issuers under MiCA

The European Banking Authority (EBA), in alignment with the European Union’s Markets in Crypto Assets (MiCA) policy, has unveiled draft regulations concerning capital and liquidity requirements for stablecoin issuers. These pivotal regulations aim to monitor and govern stablecoin activities within the European Union.

Key Regulations Set Out by EBA

The MiCA framework restricts the circulation of stablecoins denominated in foreign currencies within the EU and enforces rigorous reserve requirements for stablecoin issuers. One of the main goals of this groundbreaking policy is to ensure the stability and integrity of the digital asset market.

Stakeholders in the crypto space are urged to prepare for the forthcoming implementation of MiCA regulations scheduled for December 2024.

EBA’s Third Batch of Policy Products under MiCA

The European Banking Authority released its third set of policy proposals under MiCA, including various crucial criteria:

• Capital and liquidity requirements for stablecoin reserve assets.
• Regular liquidity requirements for stablecoin issuers.

The EBA emphasizes the importance of recovery planning for issuers of ARTs (Asset-Referenced Tokens) and EMTs (E-Money Tokens). They must prepare in advance for adverse scenarios that could impact their ability to comply with regulatory requirements related to asset reserves.

Supervision of “Significant” Stablecoins

EBA’s recent publications indicate their intention to regulate stablecoin issuers with bank asset reserves further. According to EBA, stablecoins classified as “significant” will fall under their supervision and must maintain funds equivalent to 3% of their reserves instead of the standard 2%.

The consultation package also outlines conditions for designating ARTs and EMTs as “widely used” within a member state. These criteria are crucial for identifying the most relevant custodians of asset reserves, trading platforms, payment service providers, and crypto-assets service providers. These entities will play a significant role in the MiCA framework’s regulatory landscape.

Consultation Period and Public Hearing

EBA’s proposals are open for consultation until February 8, 2024, and a public hearing is scheduled for January 30. These steps aim to gather input and feedback from stakeholders before the regulations are finalized.

These regulations under MiCA reflect the European Union’s commitment to ensuring the stability and integrity of the cryptocurrency and stablecoin markets, with a strong focus on investor protection and financial stability.