Regulation
European Stablecoin Laws Are Coming Into Effect: Here Are Six Key Concerns As MiCA Launches – DL News
MiCA Summary
- Stablecoin laws will take effect across European markets on Sunday.
- Exchanges are delisting non-compliant stablecoins.
- Experts expect instability and confusion in the markets.
Four years ago, the European Union decided to regulate cryptocurrency markets with a series of digital finance bills.
The stablecoin rules of the Cryptocurrency Markets Regulation will come into force on Sunday.
While this first tranche of MiCA rules marks a historic milestone, the cryptocurrency industry is concerned that it is about to enter a period of transformation.
Token issuers and crypto platforms will have to comply with burdensome payment licensing, reserve requirements, and the loss of non-compliant tokens.
“These factors could lead to short-term volatility and market confusion as the ecosystem adjusts to the new regulatory environment,” said Laura Chaput, head of regulatory compliance at Keyrock, a market maker.
Here’s a helpful summary of the current state of MiCA, as well as how the industry and regulators are addressing six key issues:
Close deadline
The European Banking Authority is responsible for defining the implementation details of MiCA’s stablecoin rules.
However, the EBA only published its final guidelines on 13 June.
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The tight timeframe represents “the biggest pressure point” for the industry, said Jón Egilsson, chairman and co-founder of e-money issuer Monerium. DL News.
An EBA spokesperson said DL News that the agency finalized and published all the technical standards for which it was responsible before the established deadline of June 30.
It also continues to prepare for future supervisory tasks, the spokesperson said.
Cancellations
Stablecoins that do not comply with MiCA rules will be phased out by the EU.
Cancellations risk causing market disruption, reducing options and liquidity problems, Chaput said.
Bitstamp will delist Tether’s euro stablecoin, the exchange said on Wednesday. OKX removed Tether from its European user list in March.
Binance has said it will restrict unauthorized stablecoins for EU users on some of its services, and Kraken has said it is looking into potential delistings.
Electronic money license
MiCA defines e-money tokens as electronic money. This brings with it another European regulation, known as the Payment Services Directive.
The second iteration of this law – hence the nickname PSD2 – has been in place since 2016 and requires e-money platforms to comply with onerous requirements, more so than crypto-asset platforms.
Obtaining a license could take years.
“We don’t know for sure whether stablecoins are electronic money,” Victor Charpiat, an attorney at Kramer Levin Naftalis & Frankel LLP. “This has a major impact on their tax and accounting treatment.”
Charpiat expressed concern that the provision has not been formally clarified by regulators, and since few cryptocurrency firms hold a license under PSD2, firms will lose customers.
“Many digital asset service providers could be in violation of the law starting next Monday, and there is no way to be certain because there is no clarity,” he said.
EBA regulators said they had called on the industry to prepare “in a timely manner” for MiCA once it became law a year ago, and had provided tools for asking questions.
Whether a platform needs a payment services license for e-money token transactions depends on its activities, the EBA spokesperson said. “They would be authorized through a case-by-case assessment.”
Networks without permission
Some cryptocurrency service providers that operate and interact with permissionless networks will not be able to comply with PSD2 requirements, said Tommaso Astazi, head of regulatory affairs at industry body Blockchain For Europe.
For example, the law requires payment platforms to safeguard the funds received for the execution of payment transactions.
When users use self-hosted wallets or transfer money on DeFi platforms between different blockchains, companies may not be able to custodian assets as required under PSD2, Astazi said.
Limits for non-euro stablecoins
Issuers of stablecoins denominated in currencies other than the euro or multi-asset-backed stablecoins are subject to limits.
According to MiCA, these issuers must adhere to a volume of 200 million euros per day or one million transactions when the token is used as a “medium of exchange”.
“Imposing volume restrictions on USD-backed stablecoins could drive a shift toward euro-backed alternatives, impacting the dynamics of the stablecoin market,” Chaput said.
There are significant exceptions to the thresholds, the EBA clarified in its implementation reports, allaying some industry concerns.
They do not count when the stablecoin is used for trading, as collateral for financial instrument transactions, or used to settle a derivative.
According to the EBA, issuers can also ignore the thresholds if they have “reasonable grounds” to assume that the transaction is not for the purpose of paying for goods or services. relationship.
Local reserves
MiCA requires stablecoin issuers to hold 30% of their cash reserves in EU bank accounts, or 60% for the most significant e-money tokens.
To mitigate concentration risk, these reserves must be split among several local banks.
“This will be a more immediate blow than the tight limits on the use of dollar-denominated stablecoins within the EU,” Hugo Coelho, head of digital asset regulation at the Cambridge Centre for Alternative Finance, and Mike Ringer, a partner at law firm CMS, said recently. he wrote.
This is a challenge because few banks are willing to fund cryptocurrency issuers. And because it is expensive, because it means the funds cannot be used to invest in safe assets.
For Egilsson, this provision defeats the original promise of cryptocurrencies to operate independently of the banking system.
The desirability of cryptocurrencies does not depend on the solvency of the bank, he said DL News in March.
“We can work on it. It’s not a problem,” she said. “But in the future, this is an issue that will have to be addressed.”
Inbar Preiss is a Regulation Correspondent at DL News. Do you have a suggestion? Email her at inbar@dlnews.com.