The European Banking Authority (EBA), the banking watchdog of the European Union (EU), has urged stablecoin issuers to voluntarily adopt the EU's region-wide crypto regulations, the Markets in Crypto Assets (MiCA), before the legislation comes into force. Under the schedule set by the EU, the firms have 12 to 18 months to comply with new rules. The EBA said stablecoin issuers should have sound governance, effective risk management, measures for consumer protection, and proper arrangements for handling redemptions. - The watchdog also pointed out that early preparation would help avoid sharp and disruptive business model changes at a later stage.
- The long-awaited MiCA was finally approved by the lawmakers at the European Parliament, the legislative body of the EU, with a final vote in April after three years of development, and signed into law in June.
- The regulation mandates stablecoin issuers to keep sufficient local reserves and be subject to trading limits on tokens whose value is not pegged to the euro.
- Under the new legislation, the issuers will also have to obtain a license in at least one of the 27 member states by June 2024, registering with a national financial regulator.
- The law's provisions related to stablecoins will come into effect as of July 2024, while other aspects regarding the crypto asset service providers will enter into force as of January 2025.
A stablecoin is a type of cryptocurrency whose value is pegged to another reference asset, mostly a fiat currency. - These assets are generally used by customers to trade with different cryptocurrencies without converting their funds back into fiat currencies.
- Circle, Paxos, and Tether are among the most renowned stablecoin issuers.
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