EBA Proposes New Liquidity Guidelines for Stablecoin Issuers Amid Market Fluctuations
Summary:
The European Banking Authority (EBA) has proposed new liquidity guidelines for stablecoin issuers to ensure swift redemption even in volatile market conditions. The guidelines serve as a liquidity stress test for issuers, with the intention of uncovering any liquidity inadequacies. Post their approval, the proposal will be operational from June till early next year. Currently, the proposal is in the public consultation phase, leading up to a public hearing scheduled for January 30, 2024.
The purpose of the recently proposed liquidity guidelines is to maintain the swift redemption of stablecoin even in highly fluctuating market scenarios, thereby preventing bank runs and averting crisis situations. Under these proposed guidelines, issuers should allow investors to fully redeem their currency-backed stablecoins at par. According to the official statement from the European Banking Authority (EBA), these liquidity guidelines will serve as a liquidity stress test for the issuers, identifying any lack of liquidity.
The EBA holds the belief that this test would uncover the deficient and non-liquid stablecoins, enabling them to approve only those stablecoins that have a substantial liquidity buffer. The authority suggests that the liquidity stress testing would assist stablecoin issuers in managing their portfolio and their inherent liquidity risk more effectively, and based on the results, EBA or, where relevant, the respective authority, might opt to enhance the issuer's liquidity requirements.
Following approval, the proposal is expected to be operational from June until early next year, giving the authorities the ability to amplify the issuer's liquidity requirements to mitigate associated risks using the stress testing results. Related: Binance is considering delisting stablecoins in Europe, in compliance with MiCA.
Primarily targeting stablecoin issuers, which might be non-banking institutions, the proposed liquidity rules aim to provide comparable protection to banks, and prevent undue capital or liquidity advantages. Currently, the proposal is open for public consultation, allowing the general public to provide feedback. This consultation period will remain open for three months, leading up to a public hearing scheduled for the 30th of January 2024.
EBA – the banking regulator for the European Union – has proposed a fresh set of guidelines for stablecoin issuers, demanding them to meet minimum capital and liquidity requirements. In a related magazine interview, the manager of EasyTranslate discussed the need for adaptation in light of AI's impact on industry.
Published At
11/8/2023 12:18:06 PM
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