The European Union's banking watchdog has called on stablecoin issuers to voluntarily adhere to a set of "guiding principles" to manage risks and safeguard consumers. This recommendation comes ahead of mandatory regulations that are set to be implemented in a year's time, as reported by Reuters. In April, the EU approved the Markets in Crypto Assets Regulation (MiCAR), which is considered the world's first comprehensive set of rules for trading crypto assets like bitcoin and ether, as well as issuing stablecoins. Stablecoins are crypto assets that are backed by a currency or asset.
To further specify the requirements outlined in MiCAR, the European Banking Authority (EBA) has released its initial set of measures for public consultation. These measures are aimed at regulating the issuance of stablecoins and are scheduled to be enforced on June 30, 2024. The proposed measures include provisions such as a permanent right of redemption and guidelines for handling complaints.
EBA officials anticipate a surge in stablecoin issuance in the upcoming months, following the approval of the framework law. Consequently, the EBA urges companies to adopt its guiding principles on good governance and risk management as a preparatory step before the mandatory regulations take effect. The EBA states that the purpose of this statement is to encourage timely actions to ensure compliance with MiCAR, minimize the risks of disruptive business model adjustments in the future, promote supervisory convergence, and protect consumers.
Additionally, the European Securities and Markets Authority (ESMA), another EU regulatory body, has proposed draft rules for crypto asset service providers (CASPs) involved in cryptocurrency trading. These rules, currently open for public consultation, aim to authorize CASPs and establish a clear separation between customer crypto assets and trading activities. The goal is to prevent the co-mingling of company and customer funds, drawing from lessons learned from incidents like the collapse of the U.S. crypto exchange FTX. The ESMA intends to implement these rules by January 2025, although they do not include a compensation scheme for customers who incur losses from unbacked crypto assets.
Looking ahead, the EBA plans to release a second set of draft rules in October, focusing on capital requirements for stablecoin issuers and outlining how companies should handle stablecoin redemptions during periods of market stress.
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