The European Banking Authority has proposed new rules for stablecoin issuers in the region, emphasizing liquidity and capital requirements.
Stablecoin regulation has received impetus recently from various regulators in the European region. The UK has taken the lead and prominently emphasized its rules for stablecoin issuers. The UK’s Financial Conduct Authority recently released a document on stablecoin regulation as well. Taking the cue, an EU regulator new rules for stablecoin issuers in the region.
The European Banking Authority (EBA), the regulator in question, has also raised matters on crypto regulation earlier. This time, their rules mainly focus on liquidity and capital issues for firms issuing stablecoins. The new liquidity guidelines ensure investors can easily redeem their stablecoins. Meanwhile, the EBA said the new rules would work as a ‘liquidity stress test,’ with details in its paper.
“The liquidity stress testing will help issuers of tokens to better manage their reserve of assets and generally their liquidity risk. Based on the outcome of the liquidity stress testing, the EBA or, where applicable, the relevant competent authority/supervisor, may decide to strengthen the liquidity requirements of the issuer,” said the EBA, intending to prevent cases of liquidity risks.
The guidelines are in the consultation phase currently and are expected to go live by 2024. The public consultation period will be available for three months.
With regulators making such clear guidelines, stablecoin regulation could get a further boost for retail investors. Issues of redemption and sufficient liquidity had led to cases of bankruptcy earlier. The EBA could have recognized such risks and moved towards crypto adoption with regulatory clarity. The Financial Conduct Authority, with its recent paper, had echoed rules along the same lines for stablecoins.
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