European Union Banking Watchdog Proposes New Rules for Stablecoin and Digital Asset Markets

The European Union on Wednesday November 8 proposed new stablecoin rules (photo: doc. pexels)

JAKARTA - The European Union's banking watchdog on Wednesday 8 November proposed that starting next June, issuers of currency-backed stablecoin must have sufficient funds to fully redeem investors.

The bloc is implementing the world's first comprehensive set of rules for the cryptocurrency and stablecoin markets. The European Banking Authority (EBA) also proposed minimum capital and liquidity requirements for issuers of stablecoins and other types of digital tokens.

The EBA launched a public consultation on liquidity requirements for reserve assets backing stablecoins, meaning only eligible assets of sufficiently high quality can be used.

The goal is to ensure that assets can be sold quickly for cash to pay redemptions even in depressed markets, this is important to stop “runs” and spreads in a crisis.

The EBA said that issuers of currency-backed stablecoins must be able to offer full redemptions to investors.

Stablecoins that are backed by assets such as gold, only need to offer redemption at the prevailing market price for the asset at the time of redemption.

"After the implementation of the guidelines, supervisors may strengthen the liquidity requirements of the relevant issuers to cover such risks based on the results of liquidity stress tests," the EBA said in a statement, quoted by VOI from Reuters.

Banks may be exempt from liquidity requirements in some cases, given that they already hold liquidity buffers under existing EU bank capital and liquidity rules.

The proposed liquidity rules ensure that stablecoin issuers, which can be non-bank institutions, meet the same protections, and also avoid unfair capital or liquidity advantages compared to banks.

All the proposals have been submitted for a three-month public consultation, with a public hearing on January 30.

Earlier this week, the United Kingdom's financial regulator proposed initial rules to regulate stablecoins in the first phase of UK regulation for the crypto sector.