EU: towards additional rules for issuers of stablecoins

For several months, the European Union (EU) has been engaged in an extensive digital asset regulatory agenda. It is in this context that the MiCA standards on cryptos have emerged. This measure takes into account the stablecoins that it will fully govern in 2024.

Additional measures to deal with financial distress

The European Banking Authority (EBA) proposed, Monday, July 24, standards on stablecoins. The measure is in accordance with the MiCA regulation on cryptos. The latter is not yet effective. But once fully in force, it should govern this part of the crypto market.

According to details provided by the EBA, the additional standards envisaged target European stablecoin issuers. In particular, those with significant reserves related to derivatives or covered bonds.

The additional regulation of the EBA proposes, in essence, to reinforce the prerogatives deriving from the MiCA. The latter already imposed capital requirements as well as centralized supervision by the EU.

The EBA’s normative proposal goes a little further. In addition to these measures, it wishes to implement prudential rules, in a way. Provision covering “ stablecoins strongly tied to the financial system”. Their vocation is to prevent the potential financial distress generated by the interconnection between certain stablecoins and cryptos, or even financial institutions.

“The financial distress of an asset-referenced token (ART) or e-money token (EMT) issuer can significantly increase the likelihood of distress for other crypto-asset issuers or other financial institutions, given the network of contractual obligations in which issuers operate”says the EBA in a document.

To prevent this risk, the measure proposes that stablecoin issuers comply“to additional obligations”. This by entrusting the EBA, no longer the national regulators, with their partial or total supervision.

Among other constraints considered, additional stress tests. But also, the holding of funds equivalent to 3% instead of the usual 2%, of the reserves of stablecoin issuers.

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