In anticipation of forthcoming regulations in the coming year, the European Union’s banking watchdog has called upon stablecoin issuers to voluntarily adhere to specific “guiding principles” concerning risk management and consumer protection. The European Banking Authority (EBA) unveiled its initial set of measures on July 12, which are open for public comment. These measures aim to provide clarity on the requirements outlined in the Markets in Crypto-Assets regulation (MiCA), scheduled to take effect on June 30, 2024. They include provisions such as a perpetual right of redemption and guidelines for handling complaints.
EBA wants issuers to put safety measures in place
The Economic and Financial Affairs Council of the European Union had previously approved MiCA in May, making it the world’s first comprehensive set of rules governing the trading of crypto assets like Bitcoin and Ethereum, as well as the issuance of stablecoins such as USDT. With the adoption of this framework law, EBA officials anticipate a surge in stablecoin issuance in the coming months. As a result, they have urged businesses to proactively implement the guiding principles of good governance and risk management before the regulatory restrictions come into force.
The EBA stated that their intention behind this statement is to encourage preparatory actions to ensure compliance with MiCA, and to reduce the risks associated with sudden and disruptive adjustments to business models in the future. It also seeks to promote supervisory convergence and facilitate consumer protection.
In another regulatory development, the European Securities and Markets Authority (ESMA) within the EU has introduced draft rules for crypto asset service providers (CASPs). These rules are designed to authorize CASPs while ensuring the separation of customer assets and trading. The objective is to prevent any commingling of customer and company funds, as witnessed in the case of FTX.
ESMA sets draft rules for digital asset service providers
When these ESMA regulations come into effect in January 2025, they will not include a compensation plan for customers who suffer losses from investments in unbacked crypto assets. However, in October, the EBA plans to release a second set of draft guidelines addressing the capital requirements for stablecoin issuers and outlining how businesses should handle stablecoin redemptions in volatile markets.
The introduction of guiding principles by the EBA and the draft rules by the ESMA highlights the EU’s efforts to establish a comprehensive regulatory framework for the crypto asset industry. By encouraging voluntary adherence to the EBA’s guiding principles, stablecoin issuers can proactively address risk management and consumer protection concerns. Similarly, the ESMA’s proposed rules for CASPs aim to ensure the safeguarding of customer assets and promote the integrity of the market.
As the regulatory landscape continues to evolve, businesses operating in the crypto asset sector should stay abreast of these developments and take necessary measures to align with the forthcoming regulations. The proactive adoption of risk management practices and consumer protection guidelines will not only enhance industry transparency but also contribute to the long-term stability and growth of the crypto asset market within the European Union.
The European Union’s banking watchdog, the EBA, has urged stablecoin issuers to follow voluntary guiding principles ahead of anticipated regulatory changes. The release of measures by the EBA aims to provide clarity on the requirements set forth by the MiCA regulation. Additionally, the ESMA’s draft rules for CASPs seek to authorize and regulate crypto asset service providers while ensuring the segregation of customer assets and trading. These regulatory developments reflect the EU’s commitment to establishing a robust framework for the crypto asset industry, promoting investor protection, and fostering market integrity.
