European Banking Authority calls for early adoption of stablecoin standards

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

The European Banking Authority (EBA) released its first set of measures on Wednesday, July 12, for public comment in an effort to clarify the Markets in Crypto Assets Regulation (MiCAR) requirements for the issuance of a stablecoin that would take effect on June 30, 2024. They contain clauses like a perpetual right of redemption and guidelines for managing complaints.

Screenshot of the EBA statement. Source: EBA

The EU approved its MiCAR in April, the world’s first comprehensive set of rules for trading cryptoassets such as bitcoin and ether, and issuing stablecoins, a cryptoasset backed by a currency or asset.

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 necessary restrictions are implemented.

According to the statement from the EBA:

“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 co-mingling of customer money and company money, as we saw in the case of FTX.

Related: MiCA’s stablecoin transaction cap stifles crypto adoption, say lawyers

The ESMA regulations won’t have a compensation plan for customers who lose money on investments in unbacked cryptoassets 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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