EBA Drafts Liquidity & Capital Rules For Stablecoin Issuers Under MiCA

To provide financial stability for banks and regulate systematic payments even during turbulence in the crypto market, the European Banking Authority proposed new regulations for stablecoin issuers.

According to reports, the European watchdogs have formulated liquidity and capital rules for stablecoin issuers, making the crypto assets trade more efficient and risk-free for investors.

EU Proposed Rule Aims For Stablecoin Issuers

The proposal of the European Banking watchdog to regulate rules of capital and liquidity for stablecoin issuers will provide a secure stablecoin trade environment. 

With the new rules, in which stablecoin issuer needs to ensure that their stablecoins can be redeemed by investors as per the market price with any currency or commodity, which backs the stablecoins. However, banks may be exempt from liquidity requirements in some instances, as they already hold liquidity buffers under existing EU bank capital and liquidity rules, confirmed the official statement.

In addition, stablecoin issuers, especially those non-bank institutions, need to meet certain criteria under the new proposed guidelines.

Unlike the current scenario of stablecoin trade, with the new regulations, issuers of stablecoin with eligible assets of high enough quality can be used for trades, helping investors to redeem the investment during a crisis.

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Proposed Guidelines Are Test Rehearsal For MiCA

Released on November 8, the European Banking Authority’s proposed guidelines are no less than testing for MiCA, an initiative of European Banking, towards a better crypto assets market, expected to become law on July 2o24.

With the proposed regulations, the EU Watchdog is asking stablecoin issuers to adhere to practices of full transparency regarding their disclosure, business model, risk management, and communications with authorities, aligned well with redemption management. 

Currently, all the proposals have been put out for public consultation for three months. After the completion of three months, there will be a public hearing on January 30, following which there will be a detailed discussion. If approved, the EU Banking Authority proposal will likely become law in June 2024.

Meanwhile, recently, Britain’s financial regulators set out initial proposals for regulating stablecoins in the first leg of UK rules for the crypto sector.

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