Date: 12 July, 2023
In a bid to enhance oversight and mitigate risks, the European Union’s banking watchdog has called on stablecoin issuers to voluntarily adhere to ‘guiding principles’ concerning risk management and consumer protection. This recommendation precedes the mandatory regulations set to take effect in a year, following the approval of the Markets in Crypto Assets Regulation (MiCAR) in April.
The European Banking Authority (EBA) has released its initial set of measures, subject to public consultation, to clarify MiCAR requirements for stablecoin issuance. These measures, slated to be enforceable from June 30, 2024, encompass aspects such as a permanent right of redemption and procedures for addressing complaints.
Anticipating a surge in stablecoin issuance following the approval of the regulatory framework, EBA officials encourage firms to adopt the guiding principles on good governance and risk management ahead of the mandatory rules. This proactive approach aims to reduce the risk of abrupt business model adjustments, foster supervisory convergence, and enhance consumer protection.
Additionally, the European Securities and Markets Authority (ESMA) has proposed draft rules for crypto asset service providers (CASPs) involved in cryptocurrency trading. These rules, open for public consultation, seek to authorize CASPs, ensure the segregation of customer cryptoassets and trading, and prevent the “co-mingling” of company and customer funds. The ESMA rules are scheduled to be effective from January 2025 and do not include a compensation scheme for customers facing losses in unbacked cryptoassets.
Furthermore, the EBA plans to release a second set of draft rules in October, focusing on capital requirements for stablecoin issuers and guidelines for handling stablecoin redemptions in stressed markets.
Key Points:
- The European Union’s banking watchdog urges stablecoin issuers to voluntarily comply with ‘guiding principles’ ahead of mandatory regulations effective in a year.
- The European Banking Authority (EBA) releases initial measures, subject to public consultation, to clarify requirements for stablecoin issuance under Markets in Crypto Assets Regulation (MiCAR).
- The measures, enforceable from June 30, 2024, include provisions like a permanent right of redemption and procedures for addressing complaints.
- EBA encourages preemptive adoption of guiding principles to reduce the risk of abrupt business model adjustments and enhance consumer protection.
- The European Securities and Markets Authority (ESMA) proposes draft rules for crypto asset service providers (CASPs) involved in cryptocurrency trading.
- ESMA rules aim to authorize CASPs, ensure segregation of customer cryptoassets and trading, and prevent the “co-mingling” of company and customer funds, effective from January 2025.
References:
https://www.reuters.com/technology/eu-watchdog-calls-early-adoption-stablecoin-standards-2023-07-12/#:~:text=LONDON%2C%20July%2012%20(Reuters),due%20in%20a%20year’s%20time.