With the release of draft rules by the European Banking Authority (EBA), European stablecoin issuers are facing a more complex future. Regulations, known as the Markets in Crypto Assets (MiCA), are set to impose additional requirements on any stablecoins deemed too connected to the financial system.
The EBA’s newly circulated proposals highlight the potential for financial distress within one asset-referenced token (ART) or e-money token (EMT) issuer to escalate into a wider issue, impacting other crypto-asset issuers and financial institutions. The interlinked nature of contractual obligations within this ecosystem is seen as a significant risk.
More stringent measures to manage these risks are being recommended for major ARTs or EMTs, including additional obligations and increased supervision – partially or fully – by the EBA. This change sees supervision shift away from national regulators and placed into the hands of the EBA for tokens deemed to be significant.
While such regulation might be deemed necessary for maintaining the health and stability of the financial system, the additional burden of assessment metrics, increased capital reserves, and greater stress test requirements present challenges for issuers. Under the MiCA, issuers will need to maintain funds equal to 3% of their reserve, a 1% increase from the standard rate.
Yet, this proposed regulatory framework has some silver linings for the crypto industry. For instance, the MiCA allows crypto wallet providers and exchanges to operate across the bloc with a single license. Furthermore, the provisions pertaining to stablecoins are not set to be effective until June 2024, providing some room for industry adjustment.
However, these proposed rules also indicate a cautious approach towards largescale projects like the discontinued Libra/Diem project. There are even references to a controversial cap on the use of digital payments that could potentially challenge the Euro.
While the EBA seeks industry views on these draft proposals over the forthcoming weeks, the European Securities and Markets Authority has also been active in the regulation space, releasing its own consultation on licensing procedures a fortnight ago.
Will these moves benefit the crypto industry by providing greater stability, or will they place undue burdens on issuers and potentially stifle innovation? With the EBA’s deadline of September 30, the crypto community will no doubt wait with bated breath to see the final outcome.
Source: Coindesk
