Stablecoin issuers in Europe advised to start complying before 2024

As a proactive measure in anticipation of mandatory regulations due to be enforced in 2024, the European Union’s banking overseer has prompted stablecoin issuers to voluntarily adhere to “guiding principles” concerning risk management and consumer protection.

On July 12, the European Banking Authority (EBA) unveiled its maiden collection of measures designed for public evaluation, aiming to demystify the Markets in Crypto-Assets regulation (MiCA) prerequisites for launching a stablecoin which is slated to come into effect on June 30, 2024.

Key points within these measures encompass enduring redemption rights and complaint-handling guidelines.

In May, the Economic and Financial Affairs Council of the European Union greenlit MiCA, marking the globe’s initial comprehensive rule set for trading crypto assets such as bitcoin (BTC), ethereum (ETH) and issuing stablecoins like tether (USDT).

However, with the foundational law established, EBA authorities predict an increase in stablecoin launches in the upcoming months. Hence, they advise businesses to utilize their guiding principles about good governance and risk management before these restrictions become effective.

The EBA said:

 The statement is devised to propel timely preparatory maneuvers towards MiCAR application, aiming to mitigate risks of potentially disruptive and abrupt business model adaptations at a later phase, to promote supervisory convergence, and to boost consumer protection.

In related news, the European Securities and Markets Authority (ESMA), another EU body, established preliminary rules for crypto asset service providers.

These laws are designed to license CASPs while maintaining a clear separation between customer and trading assets.

This is a move to prevent any potential intermingling of customer and corporate funds, as seen following the collapse of FTX.

When the ESMA regulations take effect in January 2025, they will not include a compensation plan for customers who incur losses on investments in unbacked crypto assets. 

In October 2023, the EBA plans to publish a second set of draft guidelines. These will explore the capital requirements of stablecoin issuers and how businesses ought to manage stablecoin redemptions in fluctuating markets.