EBA Drafts MiCA Stablecoin Liquidity & Capital Rules

The European Banking Supervisory Authority's proposition to implement regulations on capital and liquidity for issuers of stablecoins will establish a fortified environment for the trading of stablecoins.

EBA Drafts MiCA Stablecoin Liquidity & Capital Rules

In order to ensure financial stability for banks and oversee systematic payments amidst volatility in the cryptocurrency market, the European Banking Authority put forth a set of novel regulations on issuers of stablecoins.

European regulators have reportedly established capital and liquidity regulations for stablecoin issuers, enhancing the efficiency and safety of crypto asset trading for investors.

 Proposed EU Regulation Targets Stablecoin Issuers

The European Banking Supervisory Authority’s proposition to implement regulations on capital and liquidity for issuers of stablecoins will establish a fortified environment for the trading of stablecoins.

In accordance with the newly implemented regulations, stablecoin issuers are obligated to guarantee that their coins can be redeemed by investors at the prevailing market price using the backed currency or commodity.

The official statement confirmed, however, that in certain circumstances, banks may be exempt from liquidity requirements because they already maintain liquidity buffers under extant EU bank capital and liquidity regulations.

Furthermore, the newly proposed guidelines also impose specific requirements on stablecoin issuers, particularly those who are not bank institutions.

As opposed to the present state of stablecoin trading, the new regulations permit stablecoin issuers to possess eligible assets of sufficient quality for trading purposes, thereby assisting investors in redeeming their investments in times of crisis.

MiCA Conducting Test Rehearsal With Proposed Guidelines

The proposed guidelines by the European Banking Authority, published on November 8, are a trial run for MiCA, a European Banking initiative aimed at improving the market for crypto assets.

MiCA is scheduled to be enacted into law in July 2024.

In accordance with redemption management, the proposed regulations by the EU Watchdog require stablecoin issuers to adhere to practices of complete transparency concerning their disclosure, business model, risk management, and communications with authorities.

All of the proposals have been made available to the public for three months for consultation.

On January 30, three months after the conclusion of the preliminary phase, a public hearing will be held, which will be succeeded by an in-depth discussion.

Presumably, the EU Banking Authority proposal will be enacted into law in June 2024, pending approval.

Meanwhile, British financial regulators recently presented initial proposals for regulating stablecoins as the first element of UK regulations for the cryptocurrency sector.