Regulation
European stablecoin laws come into force – here are six major concerns related to the MiCA rollout – DL News
MiCA Overview
- Stablecoin laws will go live on European markets on Sunday.
- Exchanges delist stablecoins that are not compliant.
- Experts expect market instability and confusion.
Four years ago, the European Union decided to regulate cryptocurrency markets with a set of digital finance bills.
Now, on Sunday, the stablecoin rules of the Cryptoasset Markets Regulation will come into force.
Even though this first tranche of MiCA rules marks a historic milestone, the crypto industry is concerned about the start of a period of transformation.
Token issuers and crypto platforms will need to adapt to onerous payment licenses, reserve requirements, and the loss of non-compliant tokens.
“These factors could lead to short-term instability 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 practical overview of the status of the MiCA project, as well as how the industry and regulators are addressing six key points:
Tight deadline
The European Banking Authority is responsible for fine-tuning the implementation details of MiCA’s stablecoin rules.
However, the EBA did not publish its final guidance until 13 June.
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The tight timeline is “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 technical standards for which it was responsible by the June 30 deadline.
She also continues to prepare for her upcoming supervisory duties, the spokesperson said.
Radiations
Stablecoins that do not comply with MiCA rules will be gradually removed from the EU.
Delistings risk causing market disruption, reduced options and liquidity issues, Chaput said.
Bitstamp will delist Tether’s euro stablecoin, the exchange announced on Wednesday. OKX delisted Tether for EU users in March.
Binance said it would restrict unauthorized stablecoins for EU users on some of its services, and Kraken said it was reviewing possible delistings.
Electronic money license
MiCA defines e-money tokens as electronic money. This definition involves another European regulation, known as the Payment Services Directive.
The second iteration of this law — hence the nickname PSD2 — has been in effect since 2016 and requires platforms that manage electronic money to comply with onerous requirements — more so than crypto-asset platforms.
Getting a permit can take years.
“We don’t know for sure whether stablecoins are electronic money,” said 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 that, with few crypto companies holding a license under PSD2, companies will lose customers.
“Many digital asset service providers are at risk of violating the law starting next Monday, and there is no way to be sure because there is no clarification,” he said. declared.
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 provided tools for asking questions.
Whether a platform needs a payment service license for e-money token transactions depends on its activities, the EBA spokesperson said. “They would be allowed on a case-by-case basis.”
Permissionless networks
Some crypto asset service providers operating and interacting with permissionless networks will not be able to comply with PSD2 requirements, said Tommaso Astazi, head of regulatory affairs at trade association Blockchain For Europe.
For example, the law requires payment platforms to protect funds received for the execution of payment transactions.
When users use self-hosted wallets or make transfers across DeFi platforms on different blockchains, companies might not be able to hold assets as PSD2 says, Astazi said.
Caps for non-euro stablecoins
Issuers of non-euro-denominated stablecoins or multi-asset-backed stablecoins are capped.
These issuers must stick to a volume of 200 million euros per day or one million transactions when the token is used as a “medium of exchange,” according to MiCA.
“Imposing volume limitations on US dollar-backed stablecoins could lead to a shift towards euro-backed alternatives, impacting stablecoin market dynamics,” Chaput said.
There are significant exceptions to the thresholds, the EBA clarified in its implementation reports, allaying some of the industry’s concerns.
They do not count when the stablecoin is used for trading purposes, as collateral for transactions with financial instruments or used to settle a derivative product.
Issuers can also ignore the thresholds if they have “reasonable grounds” to assume that the transaction is not intended to pay for goods or services, according to the EBA. report.
Local reserves
MiCA requires stablecoin issuers to hold 30% of cash reserves in EU bank accounts, or 60% for large e-money tokens.
These reserves must be spread across several local banks to mitigate concentration risk.
“This will deal a more immediate blow than the strict limits placed on the use of dollar-denominated stablecoins in the EU,” Hugo Coelho, head of digital asset regulation at the Cambridge Center for Alternative Finance, recently said. Mike Ringer, partner at law firm CMS. wrote.
This is a challenge because few banks accept issuers of banking cryptocurrencies. And because it is expensive since it means that the funds cannot be used to invest in safe assets.
For Egilsson, this provision removes cryptography’s initial promise of operating independently of the banking system.
Crypto opportunity does not depend on bank solvency, he said DL News in March.
“We can work with that. It’s not an obstacle,” he said. “But going forward, this is a problem that will need to be resolved.” »
Inbar Preiss is a legal correspondent at DL News. Got a tip? Send her an email at inbar@dlnews.com.