Law hits digital assets: EU regulation of stablecoins

Law hits digital assets: EU regulation of stablecoins

The EU is at the forefront of an advanced regulatory regime of cryptocoins – updated obligations necessitate that crypto companies should get licensed and oblige stablecoin providers to keep ample reserves as banking institutions do. This is part of a milestone effort to implement EU regulation of stablecoins and control a not completely controlled yet cryptosphere.

General overview of stablecoins and their regulation in the EU

After approximately 2 years of working on this subject matter, the EU Parliament and Cοmmission wrapped up considerations on the EU’s landmark Μarkets in Crypto Αssets (MiCA) bill aiming to put crypto businesses under a regulative framework. Now being temporary, the bill is waiting for final approval prior to its official adoption and execution within the EU.

According to Bruno Le Maire, the French minister for the economy, finance, and industrial and digital sovereignty, the latest developments and occasions in this fast-growing field have confirmed the urgent need for EU-wide supervision. That`s why this new law will confirm the EU’s role as a rule-maker for FinTech trends.

The newly-established MiCA rules require that crypto businesses should bear the responsibility if they fail to provide sufficient trader protection, threaten market operation, or stability of finances. If this being the case, such investors will fall under EU market-abuse regulations. 

While the bill is missing several major areas of the crypto field, most notably DeFi and NFTs, which will be encompassed by another legislation, MiCA covers a great deal. In addition, these rules do not cover proof-of-work, which the legislators firstly wanted to address from an ecological point of view, taking into consideration the enormous volumes of energy necessary to mine some coins.

However, the new law does describe in details obligations for stables— tokens made to be linked to other currencies, usually the USD or EUR. They are fairly named the foundation of the crypto field, ensuring a stable store of value in market volatility and being the bedrock of all liquidity. 

The subject matter of the regulatory regime of stablecoins in the EU has become scrutinized since May 2022, when a stable called UST lost its peg with the American dollar wiping away USD 400 billion in market cap which led to many losses in investors’ funds.

To avoid similar situations, MiCA provides a set of clearly-framed rules to stablecoin providers, including keeping reserves to be able to deal with all claims and granting payout rights to buyers of coins. As a part of restrains, there will also be a limitation on EUR 200,000,000 in payments every day in case the usage of stablecoins as a form of payment is wide.

Apart from MiCA, the EU stipulated other rules that will be applicable to crypto business, in the respect of counteraction to the illicit circulation of funds and the contribution of funds to terrorist operations and the tracing of coins. Under this set of regulative norms, crypto companies should collect and make available some data about the parties of a transaction. EU legislators have also explained that there will be other obligations for transactions between providers like e-wallets and exchanges.

Adoption of this law will bring the EU ahead of the growing virtual asset economy and is likely to act like a standard-setter for other transborder obligations.

If you have any questions regarding stablecoins, contact us. Our experts have a huge expertise in crypto regulations.

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