European Banking Authority calls for early adoption of stablecoin standards

EBA officials anticipate a surge in stablecoin issuance in the coming months and have urged businesses to use its guiding principles before restrictions are implemented.

In advance of required regulations expected in the coming year, the banking watchdog for the European Union asked stablecoin issuers to voluntarily follow certain “guiding principles” on risk management and consumer protection.

On July 12, the European Banking Authority (EBA) released its first set of measures for public comment to clarify the Markets in Crypto-Assets regulation (MiCA) requirements for issuing a stablecoin set to take effect on June 30, 2024. The measures contain clauses such as a perpetual right of redemption and guidelines for managing complaints.

Screenshot of the EBA statement. Source: EBA

The Economic and Financial Affairs Council of the European Unionapproved MiCA in May — the world’s first comprehensive set of rules for trading crypto assets such as Bitcoin (BTC) and Ether (ETH), and issuing stablecoins like Tether (USDT).

However, now that the framework law has been adopted, EBA officials anticipate a surge in stablecoin issuance over the coming months, and have urged businesses to use its guiding principles on good governance and risk management before the restrictions are implemented.

According to the EBA:

“The statement is intended to encourage timely preparatory actions to MiCAR application, with the objectives to reduce the risks of potentially disruptive and sharp business model adjustments at a later stage, to foster supervisory convergence and to facilitate consumer protection.”

In another regulatory development, the EU’s European Securities and Markets Authority (ESMA) has set out draft rules for crypto asset service providers (CASPs). These rules seek to authorize CASPs while ensuring the separation of customer assets and trading. The goal is to avoid any kind of comingling of customer and company money, as in the case of FTX.

The ESMA regulations won’t have a compensation plan for customers who lose money on investments in unbacked crypto assets when they go into effect in January 2025. In October, the EBA will release a second set of draft guidelines that address the capital needs of stablecoin issuers and how businesses should handle stablecoin redemptions in volatile markets.

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