EU Enhances Stablecoin Regulation Guidelines

Jimmy Aki
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Financial regulators of the European Union [EU] have taken steps to strengthen stablecoin regulation standards through Markets in Crypto-Assets (MiCA). Draft regulatory criteria have been published that outlines complaint management standards for stablecoin issuers. This emphasises timely, fair and consistent handling of complaints by holders of asset reference token (ART).

EU Publishes Draft Standards for Stablecoin Issuer Complaint Handling

The Regulatory Technical Standards (RTS), was published on March 13. The publication established specific recommendations and requirements for stablecoin issuer complaint management policies and procedures.

The European Banking Authority (EBA) document said:

“Such a framework should support innovation and fair competition while ensuring a high level of protection of retail holders and the integrity of markets in crypto assets.”

According to the EBA, the framework will facilitate innovation and fair competition while offering security to retail holders. It will also protect cryptocurrency marketplaces.

Draft standards, created collaboratively between EBA and European Securities and Markets Authority [ESMA], will be presented for approval to the European Commission towards the end of June.

Once approved, standards will then be reviewed by both the European Parliament and Council before publication in the Official Journal of the European Union.

MiCA classifies stablecoins tethered to multiple fiat currencies or assets – including cryptocurrency – as asset-reference tokens (ART). This distinguishes them from stablecoins that only link back to one currency such as euro or dollar.

Terra’s collapse of their stablecoin UST highlighted the necessity of increased monitoring. This is why EU governments are responding with more stringent monitoring through MiCA regulation. This is in addition to a further strict vetting of shareholders and board members at crypto asset service providers (CASPs).

These regulations will regulate CASPs while simultaneously safeguarding customer assets and trading activity. This development is to avoid instances such as those witnessed at FTX where client funds became combined with company funds.

MiCA should be fully implemented by December, with stablecoin regulation beginning later that summer.

MiCA seeks to establish an all-encompassing regulatory environment for crypto issuers, service providers and users. This development represents a step forward for the EU’s efforts in effectively overseeing the cryptocurrency sector.

EU Tightens Grip on Crypto with Stablecoin Rules and Third-Party Restrictions

European Union (EU) regulations of the bitcoin market take two forms. First is through EBA’s release of final draft technical standards (RTS). This is intended to ensure stablecoin issuers adhere to adequate complaint handling processes.

Separately, the European Securities and Markets Authority (ESMA) issued recommendations. It is to restrict how crypto businesses from outside Europe might operate within its boundaries.

Then, EBA RTS outlines how issuers of asset reference tokens (ARTs), which include some stablecoins, should respond to consumer complaints regarding consumer assets such as cryptocurrency assets.

They outline criteria including complaint management policies and information dissemination to holders. They also added investigation processes and communication of investigation results.

The draft criteria is subject to public consultation and are expected to become law following their official publication in an EU journal.

The EBA measures form part of the Markets in Crypto-Assets (MiCA) regulation, an important piece of EU legislation which establishes an oversight regime for crypto assets and service providers throughout all 27 member states.

MiCA was passed into law in May 2023 and will take full effect by December 2024; stablecoin rules will go into force first, starting June 30th this year.

ESMA’s proposal is aimed at limiting the way foreign-based crypto businesses serve customers within Europe.

The proposed guidelines make sure that these firms would only be allowed to offer services to EU clients if their request came directly from them. This approach is known as reverse solicitation that removes unnecessary marketing efforts by foreign cryptocurrency businesses.

The move of the EU legislators reveals an increasing global trend where countries create guidelines and laws in the cryptocurrency business practices.

In the U.S. alone, enforcement proceedings against cryptocurrency firms increased significantly in 2023. But countries like Hong Kong actively drafted their own crypto legislation.

MiCA is an important move towards the cryptocurrency regulation in Europe. Although, its success and comparison to its existing regulatory methods worldwide remain unknown.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.