The European Banking Authority’s New Guidelines for Stablecoin Issuers
The European Banking Authority (EBA) is proposing new guidelines for stablecoin issuers to establish minimum capital and liquidity requirements. The goal is to ensure that stablecoins can be quickly redeemed, even during turbulent market conditions, in order to prevent bank runs and contagion in a crisis.
Under the proposed liquidity guidelines, stablecoin issuers must offer any stablecoin backed by a currency that is fully redeemable at par to investors. The official proposal by EBA stated that the guidelines will serve as a liquidity stress test for stablecoin issuers.
EBA believes the stress test will highlight any shortcomings and lack of liquidity for the stablecoin, which can help them approve only fully backed stablecoins with enough liquidity buffer.
Implementation and Public Consultation
If approved, the proposal will come into effect from June to early next year. After implementing the guidelines, authorities will have the power to strengthen the liquidity requirements of relevant issuers based on the outcome of the liquidity stress testing. The proposed rules are aimed at ensuring non-bank institutions meet the same safeguards and avoid unfair advantages over banks.
The proposal is currently in the consultation phase, open for public input for three months until a public hearing is scheduled on Jan. 30, 2024.
Hot Take: EBA’s Move Towards Regulating Stablecoins
The EBA’s move to propose new guidelines for stablecoin issuers demonstrates a proactive approach towards regulating this rapidly growing sector of digital assets. By setting minimum capital and liquidity requirements, EBA aims to ensure stability and mitigate risks associated with stablecoins, ultimately protecting investors and financial markets from potential crises.
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