The European Union’s banking watchdog, the European Banking Authority (EBA), has issued a resounding call to stablecoin issuers, urging them to swiftly adopt comprehensive standards aimed at ensuring the stability and security of the crypto market.
Quick facts:
- EU banking watchdog calls for early adoption of stablecoin standards ahead of mandatory rules.
- EBA publishes measures to flesh out requirements for issuing stablecoins under MiCAR.
- ESMA sets out draft rules for crypto asset service providers to ensure customer protection.
- EBA plans to release the second batch of draft rules in October on capital requirements and stablecoin redemptions.
With mandatory rules set to take effect in the near future, the EBA is encouraging issuers to voluntarily comply with “guiding principles” that manage risks and prioritize consumer protection.
Following the approval of the Markets in Crypto Assets Regulation (MiCAR) in April, which established the world’s first comprehensive framework for crypto asset trading and stablecoin issuance, the EBA has released a set of measures to further flesh out the requirements for stablecoin issuance.
These measures, currently open for public consultation, are slated to be enforced starting on June 30, 2024.
The EBA’s aim in promoting the early adoption of stablecoin standards is to mitigate potential disruptions and minimize the need for significant business model adjustments down the line.
By proactively aligning with the guiding principles of good governance and risk management, stablecoin issuers can facilitate supervisory convergence and enhance consumer protection.
ESMA Introduces Draft Rules for Crypto Asset Service Providers
In parallel, the European Securities and Markets Authority (ESMA) has introduced draft rules for crypto asset service providers (CASPs) engaged in cryptocurrency trading.
These rules, subject to public consultation, are designed to authorize CASPs and establish clear segregation of customer crypto assets from company funds. Lessons learned from past events, such as the unfortunate collapse of the US crypto exchange FTX, have informed the formulation of these rules.
The proposed ESMA rules, set to come into effect in January 2025, prioritize the protection of customer assets. However, it is important to note that they do not include a compensation scheme for losses related to unbacked crypto assets.
Next Batch of Laws Focus on Capital Requirements for Stablecoin Issuers
Looking ahead, the EBA plans to release a second batch of draft rules in October, focusing on capital requirements for stablecoin issuers and providing guidance on stablecoin redemptions during periods of market stress.
Related: EU Agrees on Capital Requirements for Banks Holding Crypto Assets
This comprehensive regulatory approach aims to establish a robust framework that safeguards the stability and integrity of the crypto market.
By heeding the EBA’s call for early adoption of stablecoin standards, issuers can contribute to a safer and more transparent crypto environment within the European Union. Embracing these standards not only protects consumers but also promotes trust and confidence in the rapidly evolving world of digital assets.
