European Banking Authority Urges Swift Implementation of Stablecoin Standards

As the European Union prepares for upcoming regulations in the cryptocurrency space, the European Banking Authority (EBA) has called on stablecoin issuers to voluntarily adhere to specific “guiding principles” regarding risk management and consumer protection.

On July 12, the EBA released its initial set of measures for public feedback to provide clarity on the requirements outlined in the Markets in Crypto-Assets regulation (MiCA), which is set to come into effect on June 30, 2024. These measures encompass provisions such as a perpetual right of redemption and guidelines for handling customer complaints.

The approval of MiCA by the Economic and Financial Affairs Council of the European Union in May marked a significant milestone as it became the world’s first comprehensive regulatory framework for trading crypto assets like Bitcoin and Ether, as well as issuing stablecoins such as USDT.

With the adoption of the regulatory framework, the EBA anticipates a surge in stablecoin issuance in the coming months and is urging businesses to adopt its guiding principles on good governance and risk management prior to the implementation of the regulations.

According to the EBA, the purpose of this statement is to encourage early preparations for the application of MiCA, aiming to minimize the risks of disruptive business model adjustments later on, foster supervisory convergence, and facilitate consumer protection.

In another regulatory development, the European Securities and Markets Authority (ESMA) of the EU has introduced draft rules for crypto asset service providers (CASPs). These rules aim to authorize CASPs while ensuring the segregation of customer assets and trading activities, preventing the commingling of customer and company funds as seen in the case of FTX.

However, the ESMA regulations, which will take effect in January 2025, do not include a compensation plan for customers who suffer losses from investments in unbacked crypto assets. Additionally, in October, the EBA plans to release a second set of draft guidelines addressing the capital requirements for stablecoin issuers and providing recommendations on handling stablecoin redemptions in volatile markets.

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