The European Banking Authority (EBA), the EU’s banking watchdog, has released a statement providing guidance on stablecoins and urging financial institutions to comply with the forthcoming regulations outlined in the Markets in Crypto-Assets (MiCA) framework. The EBA encourages timely preparatory steps to ensure a smooth transition toward the application of MiCA requirements.
MiCA, which recently came into force as Regulation (EU) 2023/1114, establishes a comprehensive regulatory and supervisory regime for crypto-assets issuance and service provision within the European Union. The regulation covers a wide range of activities, including the offering and trading of asset-referenced tokens (ARTs) or stablecoins and electronic money tokens (EMTs).
The EBA’s statement emphasizes that prior to the application date of MiCA on June 30, 2024, the offering of ARTs and EMTs falls under the jurisdiction of national laws. However, the EBA encourages financial institutions and other undertakings involved in ART/EMT activities to undertake a comprehensive legal assessment to determine the permissibility of such activities and the associated regulatory and supervisory conditions.
To facilitate preparedness for the forthcoming MiCA requirements, the EBA has outlined a set of guiding principles that financial institutions and other entities should consider. These principles aim to reduce potential disruptions and enable a smooth transition to the new regulatory framework. It is important to note that compliance with the guiding principles does not equate to full compliance with MiCA or any national laws and regulations.
One of the key guiding principles highlighted by the EBA is the importance of disclosure to potential token acquirers and holders. Financial institutions and undertakings engaged in ART/EMT activities are encouraged to adhere to high standards of disclosure, ensuring that potential buyers and holders are fully informed about the rights and risks associated with these tokens.
Furthermore, the EBA emphasizes the need for financial institutions to have a well-defined business model that outlines the viability and sustainability of their operations. They should also demonstrate effective risk management and governance practices commensurate with the nature, scale, and complexity of their ART/EMT activities.
It also emphasizes the importance of maintaining robust reserve, recovery, and redemption arrangements for token issuers. Financial institutions are encouraged to establish and maintain recovery and redemption plans and maintain a reserve of assets and sufficient own funds in alignment with MiCA’s specifications.
In terms of communication and compliance, financial institutions are urged to notify the competent authorities in their respective jurisdictions about their intention to offer ARTs or EMTs to the public or seek admission to trading. The EBA has provided a template that can be used for this purpose, which may be supplemented by additional specifications from the relevant competent authority.
The EBA’s statement also highlights the importance of competent authorities in ensuring compliance with MiCA. They are encouraged to provide guidance and information to financial institutions and make available clear and accessible information for consumers regarding the regulated status of ARTs and EMTs, as well as the rights and protections available.
As the application date for MiCA approaches, the EBA will continue to engage with competent authorities to promote supervisory convergence and a level playing field across the EU. The objective is to ensure a well-regulated and stable environment for crypto-asset activities within the European Union.