The EU's Markets in Crypto-assets Regulation (MiCA or MiCAR), one of the first comprehensive regulatory framework for crypto-assets, was adopted by the bloc on 20 April 2023 and is expected to apply in Q4 2024 across the EU.
Among the rules in MiCA, the provisions for stablecoins will start applying from 30 June 2024, six month ahead of other rules on licensing for crypto wallet providers and exchanges. Last month, European Banking Authority (EBA) published a statement saying that stablecoin issuers should start making preparation to comply with the requirements.
Below, we briefly introduce the requirements on stablecoin issuers. We have previously written about MiCA on MiCA covering its application to NFTs, public token offerings and crypto asset service providers (CASPs).
MiCA sets governance and reserve requirements for two types of stablecoins：
crypto-assets purports to maintain a stable value by referencing the value of one official currency (Electronic Money Tokens or EMT), and
crypto-assets purports to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies (Asset-referenced Tokens or ART).
Likely prompted by the infamous collapses of Terra (UST) - an "algorithmic stablecoin" and the collapse of cryptocurrency exchange FTX, EBA said it published the recent statement to:
The EBA also warned that issuers of EMT and ART should start adhering to MiCA’s “high standards” of disclosure to potential users sooner rather than later. Such standard is higher compared to the general disclosure requirements (e.g. issuing a whitepaper) on non-ART and non-EMT issuers. ART and EMT issuers also face other strict requirements in addition to disclosure.
Requirements on issuers of ART
Issuers of ART in the EU need to:
meet certain capital requirements;
obtain permission from a competent authority;
not only publish a whitepaper, but also get it approved by the competent authority;
notify holders adequately, such as publishing and updating the exact number of ART in circulation and the value and composition of the reserve assets on its website at least monthly;
comply with requirements relating to the maintenance and custody of reserve assets, such as separating reserve assets from the issuers’ assets and securing prompt access to such reserve assets.
Under MiCA, a permission to issue ART is valid for the entire EU. However, supervision remains with the competent authority of the EU member state in which the issuer is domiciled.
Requirements on issuers of EMT
Issuers of EMT in the EU also face enhanced requirements. First of all, EMT may only be issued by credit institutions and e-money institutions. In addition:
a white paper must be published and presented to the competent authority, as with ART issuers;
issuers of EMT must ensure an immediate repayment of funds at the demand of holders at par value, and a clear statement on conditions of redemption;
Issuers of EMT are prohibited from paying interest on the tokens.
Issuers of ART and EMT (as well as CASPs), when providing crypto-asset services should not grant interest to users of ART or EMT for the time such holders are holding those tokens.
Significant ART/EMT
If an ART or EMT is determine by the EBA to be significant, more stringent requirements apply. EBA will then perform supervision on the tokens.
Additionally, the EBA is mandated to develop 17 technical standards and guidelines under MiCA to further specify the requirements for ARTs and EMTs, and an additional 3 mandates jointly with European Securities and Markets Authority (ESMA), EBA's counterpart for securities markets. Publication of technical standards is expected in Q2 2024.
The news comes on the same day that ESMA issued its first batch of proposed MiCA rules detailing how CASPs seeking a license to operate across the bloc will obtain authorisations - the proposals are set out in a 160-page and include how crypto firms should handle user complaints and manage conflicts of interest.
While there is still some time before MiCA comes to full effect and more technical guidelines are in train, MiCA already represents a game-changer for token issuers and CASPs, as the regime offers the promise of a regulated, relatively light touch, pathway to issuing tokens and performing crypto-asset related services. We anticipate that lawmakers around the world will be reviewing MiCA with interest as they craft their own regulatory regimes.
By Michael Bacina, Steven Pettigrove and Jake Huang