The European Union's banking watchdog has introduced rules for the regulation of cryptocurrency and stablecoin markets. The European Banking Authority (EBA) has proposed minimum capital and liquidity requirements for issuers of stablecoins and other digitized tokens.

The EBA's proposal, published today (Wednesday), is designed to ensure that issuers of stablecoins backed by currencies have sufficient funds for investors to redeem in case of losses. This move aims to establish a framework for the stablecoin industry and provide safeguards against potential crises.

Key to the proposed regulations is the requirement for issuers to maintain liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term for the reserve of assets that back the stablecoin reserves. These assets must meet specific criteria, ensuring their quality, and only eligible assets of high enough quality can be utilized.

UK Takes Lead in Regulating Stablecoins

The primary goal of the new requirements is to align with Markets in Crypto-Assets Regulation (MiCA)'s objective of monitoring and preventing potential risks from the widespread use of asset-referenced tokens (ARTs) and e-money tokens (EMTs) in non-EU currencies as a means of exchange.

The consultation period for these proposals extends until February 8, 2024. Interested parties can submit their comments on the EBA's consultation page. Furthermore, the EBA will conduct a virtual public hearing on January 17, 2024, to engage with stakeholders on these consultation papers.

➡️Supervisory Colleges: https://t.co/tdowUCP3fT

➡️Reporting of transactions with asset-referenced tokens and e-money tokens denominated in a non-EU currency: https://t.co/9YVAsHS2n5

➡️Own funds requirements and stress testing of issuers: https://t.co/2f0ZtUarFJ

— EU Banking Authority - EBA 🇪🇺 (@EBA_News) November 8, 2023

MiCA, which came into effect on June 29, 2023, sets forth a regulatory framework for the issuance and provision of crypto assets in the EU. The provisions concerning the offering to the public and admission to trading of ARTs and EMTs will become applicable from June 30, 2024.

UK's Answer to Crypto Turmoil?

In February, the UK's Ministry of Finance unveiled its initial set of regulations for crypto assets, Reuters reported. The decision to regulate the sector followed the collapse of FTX, which resulted in substantial losses to investors.

The rules will apply to crypto firms based in the UK or those providing services to the UK. Such firms will be required to obtain a license, adhere to minimum capital and liquidity requirements, and potentially establish a physical presence in the UK, as determined by the Financial Conduct Authority.

Presently, crypto firms are only required to demonstrate their compliance Compliance In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a Read this Term with anti-money laundering policies. Binance, one of the largest crypto exchanges, welcomed the public consultation, expressing support for effective and appropriate regulation to foster the mainstream adoption of digital assets.