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A document obtained by CoinDesk states that if one issuer of asset-referenced tokens (ARTs) or e-money tokens (EMTs) experiences financial distress, it could significantly raise the likelihood of distress at other issuers and financial institutions that deal with crypto-assets. The document refers to the two types of stablecoin established in the proposed Markets in Crypto-assets Regulation (MiCA), which are tied to the value of fiat currency or other assets. The network of contractual obligations between issuers is said to contribute to this interconnectedness and potential financial risk.
This article originally appeared on www.coindesk.com
The European Union (EU) has recently introduced proposals to regulate stablecoin issuers that have bank assets, according to the European Banking Authority (EBA). The move comes as the EU acknowledges the growing influence of stablecoins and the need to avert any potential risks associated with their operations.
Stablecoins, as the name suggests, are cryptocurrencies designed to maintain a stable value by pegging them to a reserve asset such as a fiat currency or a commodity. These digital currencies have gained significant popularity in recent years and are often used for cross-border transactions and as a store of value.
With the rising prominence of stablecoins, regulatory bodies around the world have been grappling with the need to address potential risks and ensure a level playing field for both traditional and digital financial services. In this context, the EBA announced its intention to impose additional regulations on stablecoin issuers that have bank assets.
The proposed regulations aim to bring stablecoin issuers in line with traditional financial institutions and ensure that they adhere to stringent standards of supervision and consumer protection. The EBA argues that stablecoin issuers with bank assets should be subject to the same regulatory framework as banks to maintain stability in the financial system.
The EU’s move is consistent with its broader efforts to regulate the digital finance sector. Earlier this year, the EU unveiled its comprehensive framework, known as the Digital Finance Package, which includes proposals for regulating cryptocurrencies, including stablecoins. The package aims to establish a harmonized regulatory framework across the EU to create legal certainty and foster innovation while mitigating risks.
The EBA’s proposal suggests treating stablecoin issuers as credit institutions, subjecting them to requirements related to capital, liquidity, governance, and supervision. These proposals aim to ensure that stablecoin issuers maintain sufficient reserves and capital buffers to cover any potential risk.
Furthermore, the EBA has emphasized the need for robust risk management frameworks and security protocols to safeguard stablecoin users’ funds. This includes measures to prevent money laundering, terrorist financing, and other illicit activities, which have long been a concern in the digital finance realm.
The EBA’s proposals make it clear that the EU wants to ensure that stablecoin issuers operate on a level playing field with traditional financial institutions. By subjecting them to additional regulations, the EU hopes to foster trust, stability, and consumer protection in the rapidly evolving digital finance landscape.
However, it is worth noting that not all stablecoin issuers will fall within the scope of these regulations. The EBA’s proposal specifically targets those stablecoin issuers that also have bank assets, aiming to address potential systemic risks associated with their operations. Nevertheless, this move represents a significant step toward establishing a comprehensive regulatory framework that covers various aspects of the digital finance sector.
The introduction of regulations for stablecoin issuers with bank assets reflects the EU’s commitment to striking the right balance between fostering innovation and ensuring the stability and integrity of the financial system. As the digital finance landscape continues to evolve, it is crucial for regulators to stay vigilant and adapt their frameworks to address new challenges and risks effectively. The proposals put forward by the EBA are evidence of the EU’s determination to foster a secure and reliable environment for both traditional and digital financial services.
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