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The EBA has issued five guiding principles that stablecoin issuers should adhere to.

The European Banking Authority (EBA), in a statement released on July 12th, advised stablecoin issuers to be prepared for compliance with the forthcoming Markets in Crypto-Assets (MiCA) regulation, which is expected to come into effect next year.

The financial supervisory institution encouraged stablecoin issuers to voluntarily and swiftly comply with the guiding principles for consumer protection and risk management, before mandatory rules are put in place.

The statement addressed topics such as transparency towards buyers, a well-defined business model, robust governance and risk management commensurate with activities, reserve and redemption arrangements, and ongoing communication with authorities. The regulator stated:

“Financial institutions (and other undertakings) are encouraged to carry out a comprehensive legal assessment to determine if the activities are legally permissible and, if so, under what legal, regulatory and supervisory (if any) conditions in the jurisdiction(s) concerned.”

Meanwhile, the EBA plans to publish draft rules on how stablecoin issuers should manage redemptions under stress and capital requirements.

The MiCA regulation mandates that stablecoin issuers, who must be licensed by at least one financial regulator in a European Union member state, to ensure European financial stability and consumer protection.

Europe’s Crypto Regulation Efforts

The regulation of the crypto industry continues at a steady pace in Europe. The European Securities and Markets Authority (ESMA) is also working on draft regulations for the crypto industry. The rules will apply to crypto asset service providers (CASPs) and will come into effect in January 2025.

The proposed rules will require crypto exchanges to segregate customer assets and prevent commingling of funds.

However, trading with cryptocurrencies will still carry risks as the regulator does not plan to include any compensation scheme for customers who suffer losses from investing in unsupported assets.

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