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EU Regulator Unveils Liquidity Rules for Stablecoin Issuers

The European Banking Authority (EBA), the EU’s banking oversight body, has introduced fresh guidelines for stablecoin issuers, outlining minimum capital and liquidity standards. On Wednesday, the European Banking Authority released new guidelines under the Markets in Crypto-Assets Regulation (MiCA).

Liquidity Guidelines

The recently introduced liquidity guidelines are designed to facilitate the rapid redemption of stablecoins, particularly in challenging market situations. This is intended to mitigate the potential bankruptcy risks and spread during a crisis.

As per the outlined liquidity guidelines, stablecoin issuers must offer “high-quality” stablecoins supported by fully redeemable currencies at a value equivalent to investors. The EBA’s official proposal highlights these guidelines as a liquidity stress test for stablecoin issuers.

Depending on the stress testing outcomes, the EBA has the authority to augment the liquidity requirements for a specific stablecoin issuer, as stated in a press release by the regulatory agency. The guidelines stated:

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“Performing liquidity stress tests will aid token issuers in better managing their asset reserves and mitigating overall liquidity risk. Depending on the results of these tests, the EBA or the relevant competent authority/supervisor, if applicable, has the authority to enhance the liquidity requirements for the issuer.”

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The EBA is inviting input on its consultation documents for the following three months, concluding on Feb. 8, 2024. Additionally, a virtual public hearing is scheduled for Jan. 30, 2024. Upon approval, the guidelines are anticipated to be enforced from early 2024.

Following the adoption of the guidelines, regulatory bodies will possess the authority to enhance the liquidity requirements for the respective issuer, addressing risks identified through the liquidity stress testing outcomes.

The EBA emphasized that guaranteeing the redeemability of stablecoins in challenging circumstances is crucial for upholding public trust in these digital assets.

EU Introduces Guidelines to Mitigate Risks

This action is a component of a more extensive regulatory initiative within the EU concerning crypto assets, intending to mitigate associated risks. The principal objective of the latest standards is to align with the Markets in Crypto-Assets Regulation (MiCA), focusing on overseeing and mitigating potential risks arising from the widespread utilization of e-money tokens (EMTs) and asset-referenced tokens (ARTs) in transactions involving non-EU-currencies.

EU regulators aim to guarantee that stablecoins maintain substantial liquidity buffers, akin to the cash reserves banks are obligated to hold, preventing potential destabilization in situations resembling bank runs.

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Upcoming Regulations Will Avoid Unjust Competition

Furthermore, the suggested stipulations would be applicable to all stablecoin issuers, extending beyond banks. The EBA asserts that these upcoming regulations will prevent unjust competition concerning capital and liquidity needs.

In sum, we can say that the EU’s introduction of liquidity rules for stablecoin issuers, in line with MiCA, reflects a broader effort to regulate crypto assets. These guidelines, addressing risks, aim to uphold market stability and investor confidence.


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Hassan Mehmood (Saudi Arabia)

Hassan is currently working as a news reporter for Tokenhell. He is a professional content writer with 2 years of experience. He has a degree in journalism.

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