Coinfeeds Daily → European Banking Authority Proposes Liquidity Guidelines for Stablecoin Issuers

European Banking Authority Proposes Liquidity Guidelines for Stablecoin Issuers

Published: Nov 09, 2023 | Last Updated: Mar 17, 2024
Howard Kane

EBA takes proactive steps to regulate stablecoins, ensuring stability in the face of market volatility

The European Banking Authority (EBA) is taking proactive steps to regulate stablecoin issuers. The EBA has proposed new liquidity guidelines to ensure that stablecoins can be quickly redeemed even during market turmoil, preventing bank runs and contagion. The guidelines also require stablecoin issuers to offer fully redeemable stablecoins backed by a currency.

Liquidity Rules for Stablecoin Issuers

The proposed guidelines will act as a liquidity stress test to identify any shortcomings and lack of liquidity. This is a significant move by the EBA to ensure that the financial system remains stable, even in the face of potential market volatility. The proposal is set to come into effect from June next year, giving stablecoin issuers ample time to prepare and comply.

Public Consultation Phase

Before these guidelines are officially implemented, there will be a public consultation phase lasting three months. This will provide an opportunity for stakeholders to voice their opinions and concerns, ensuring a comprehensive and inclusive approach to the new rules. A public hearing is scheduled in January 2024, where the EBA will further discuss the guidelines.

Draft Rules on Liquidity and Capital Requirements

In addition to the liquidity guidelines, the EBA has also published draft rules on liquidity and capital requirements for stablecoin issuers. These rules are in line with the EU's new Markets in Crypto Assets (MiCA) regulation. The guidelines cover a range of requirements, including regular liquidity stress testing for large stablecoin issuers, and capital and liquidity requirements for stablecoin reserve assets.

Feedback on Draft Rules

The EBA is seeking feedback on these draft rules until February 8, 2024. This feedback will be crucial in refining the rules and ensuring they are fit for purpose. The EBA's proactive approach to regulating stablecoin issuers is a significant step towards ensuring the stability of the financial system in the face of the growing popularity of cryptocurrencies.

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