According to the proposed rules, effective from June 2024, such issuers must maintain sufficient funds to fully redeem investors. This marks the world’s first comprehensive set of regulations for cryptocurrency and stablecoin markets within the European Union according to Reuters.
The EBA’s proposal includes minimum capital and liquidity requirements for issuers of stablecoins and other digitised tokens. The public consultations launched by the EBA specifically address liquidity requirements for the reserve of assets supporting a stablecoin, emphasising that only eligible high-quality assets can be utilised.
The primary objective of these measures is to ensure that assets can be swiftly liquidated to generate cash for redemptions, even in stressed markets. This is seen as crucial in preventing runs and contagion during a crisis. The EBA specifies that issuers of stablecoins backed by a currency must be capable of providing full redemptions at par with investors. In contrast, stablecoins backed by assets such as gold are only required to offer redemptions at the prevailing market price for the asset at the time of redemption.
The EBA’s statement highlights that following the application of the guidelines, supervisors may reinforce liquidity requirements for the relevant issuer based on the outcome of liquidity stress testing. The proposal also notes that banks might be exempt from liquidity requirements in certain situations, considering their existing liquidity buffers under EU bank capital and liquidity rules. This exemption is aimed at ensuring that non-bank institutions issuing stablecoins adhere to the same safeguards, preventing any unfair capital or liquidity advantages over banks.
All the proposed regulations are open for public consultation for a three-month period, with a public hearing scheduled for 30 January 2024.
Similar developments in the UK
In a related development, financial regulators in the United Kingdom recently presented initial proposals for regulating stablecoins as part of the country’s first set of rules for the crypto sector.
In June 2023, the UK has passed a bill that gives regulators the power to supervise crypto and stablecoins. The bill has received royal assent, a purely procedural step following agreement from lawmakers, that makes the Financial Services and Markets Bill an Act, and includes measures to bring crypto and stablecoins into the scope of regulation. Previously, the bill was approved by the upper chamber of Parliament.
The Act ‘gives regulators control of their financial services rulebook,’ following the UK exit from the EU, enabling regulation of crypto assets to support their safe adoption in the UK.
