Casey Wagner

As mandated by the recently-implemented Markets in Crypto-Assets Regulation (MiCA), the European Union has taken another step toward establishing regulations around stablecoins.&nbsp;



The European Banking Authority (EBA) on Wednesday released a final draft of regulatory technical standards in partnership with the European Securities and Markets Authority (ESMA), which oversees markets in the EU. The standards establish protocols for stablecoin issuers when addressing complaints.&nbsp;



The standards ask issuers of asset-referenced tokens — known as <a href="https://blockworks.co/tag/stablecoins">stablecoins</a> — to publish how they handle complaints and to have a standardized process for customers and users to submit them.&nbsp;



Read more: <a href="https://blockworks.co/news/stablecoins-beat-bitcoin-etf-inflows">Cheatsheet: Stablecoins mint $7.7B since bitcoin ETFs, beating inflows</a>



“The issuer should acknowledge receipt of a complaint clearly mentioning the date of its receipt and, where an electronic complaint form is filed, provide the complainant with a copy of the complaint; assess whether the complaint is admissible and contains all relevant information necessary for the investigation and request immediately to the holders of asset-referenced tokens and other interested parties any additional information needed,” the draft standards state.&nbsp;



The <a href="https://blockworks.co/tag/european-banking-authority">EBA</a> first released draft guidance for public comment in July 2023. Based on these comments, “the EBA decided to make a small number of targeted amendments,” the banking regulator <a href="https://www.eba.europa.eu/publications-and-media/press-releases/eba-publishes-final-draft-technical-standards-complaints">said</a> in a statement Wednesday. Changes include new provisions relating to data protection and updates to complaint forms to include a section for complainants to list legal representatives.&nbsp;



Wednesday’s final draft also comes months after the EBA <a href="https://www.eba.europa.eu/sites/default/files/document_library/Publications/Consultations/2024/Consultation%20on%20Guidelines%20on%20recovery%20plans%20under%20MiCAR/1063477/CP%20GL%20recovery%20plans%20under%20MiCAR.pdf">released</a> draft guidelines relating to how stablecoin and other cryptocurrency issuers should structure their recovery plans.&nbsp;



Read more: <a href="https://blockworks.co/news/2024-stablecoins-crypto-volatility">2024 will be the year for stablecoins</a>



“Issuers should include at least one recovery option that would strengthen the capital position and one recovery option aimed at improving the liquidity position of the issuer,” the EBA suggested in November.



This final draft for regulatory technical standards will be submitted to the European Commission for endorsement by the end of June 2024, the EBA said, before heading to the European Parliament and the Council for approval.



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European Banking Authority

European Banking Authority takes next step in finalizing stablecoin policy 

The European Banking Authority released draft guidelines for stablecoin issuers Wednesday, per a mandate under the recently passed Markets in Crypto-Assets Regulation (MiCA) policy.&nbsp;



In its proposal, the EBA outlines how issuers of stablecoins — which the regulator refers to as asset-reference tokens (ARTs) — and other cryptocurrencies should structure their risk management and recovery plans.&nbsp;



“All issuers should include a de-pegging risk indicator, aimed to keep track of the alignment between the market price of the token and the market value of the referenced asset,” the <a href="https://www.eba.europa.eu/sites/default/documents/files/document_library/Publications/Consultations/2024/Consultation%20on%20Guidelines%20on%20recovery%20plans%20under%20MiCAR/1063477/CP%20GL%20recovery%20plans%20under%20MiCAR.pdf">draft</a> reads.&nbsp;



The regulator stipulated that in response to &#8220;adverse scenarios&#8221; potentially affecting a company&#8217;s adherence to regulatory standards, there must be prepared measures in place to ensure token holders are fully compensated.



“Issuers should include at least one recovery option that would strengthen the capital position and one recovery option aimed at improving the liquidity position of the issuer,” the EBA suggests.&nbsp;



Similar to <a href="https://blockworks.co/news/stablecoin-bill-bipartisan-support">draft laws making their way through the US legislature</a>, the EBA’s proposal includes mandates on stablecoin reserves. Reserve assets should be liquid, ample and low-volatility, the EBA suggests, adding that an issuer’s recovery plan is dependent upon the nature of its reserves.&nbsp;



The “liquidity profile” of reserve assets should also be monitored regularly, per the EBA’s draft.&nbsp;



The draft comes months after the European Union voted to advance <a href="https://blockworks.co/tag/mica">MiCA</a> by a 13:1 margin. While the sweeping regulatory package has been hailed by many as the most comprehensive of its kind, it still <a href="https://blockworks.co/news/mica-defi-exempt-eu-regulation">leaves a significant portion of the crypto industry</a> — decentralized finance — out. 



“[Excluding DeFi] was a conscious political decision by <a href="https://blockworks.co/tag/european-union">EU</a> policymakers when negotiating MiCA given the small size of the nascent market and a desire to see the market evolve and become more understood before deciding on how it should be regulated,” Mark Foster, the EU policy lead at the Crypto Council for Innovation told Blockworks in October. 



“If there are risks that have been identified, they can propose legislation at a later stage for the EU to then potentially develop something on <a href="https://blockworks.co/tag/defi">DeFi</a> in the course of the next Parliament,” Foster added. 



The comment period for the draft consultation ends on Feb. 8. Interested parties are also invited to attend a public hearing on Jan. 30, the EBA announced.



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European Banking Authority has new rules for stablecoin issuer recovery plans

James Cirrone

The European Banking Authority wants to expand the scope of its guidelines for money laundering and terrorist financing risk factors to include “crypto-asset service providers.”



The European Union’s financial regulator argued in a <a href="https://www.eba.europa.eu/sites/default/documents/files/document_library/Publications/Consultations/2023/Consultation%20on%20revised%20Guidelines%20on%20money%20laundering%20and%20terrorist%20financing%20%28ML-TF%29%20risk%20factors/1055913/Consultation%20paper%20on%20amending%20Guidelines%20on%20ML%20FT%20risk%20factors.pdf">consultation</a> published Wednesday that these guidelines ought to include warnings about transactions with self-hosted crypto addresses and crypto service providers that fall outside the regulatory reach of <a href="https://blockworks.co/news/eu-parliament-passes-mica-vote">the incoming MiCA rules</a>.&nbsp;



In an executive summary of the consultation, the EBA explains that this amendment isn’t necessarily meant to put crypto asset service providers (CASPs) on blast, but to let them know the risks associated with their business model and help them mitigate such risks.&nbsp;



“The amendments introduce new sector-specific guidance for CASPs, which highlights factors that may indicate the CASP’s exposure to the higher or lower [money laundering and terrorist financing] risk,” the EBA wrote.



Other risks associated with crypto service providers mentioned by the European regulator had to do with products that exchange cryptocurrencies for fiat money and users who are on the “darknet” or “involved in crypto mining in high-risk jurisdictions.”



The summary continued, “CASPs should consider these factors when carrying out the [money laundering and terrorist financing] risk assessments of their business and customers at the outset and during the business relationship. The Guidelines also explain how they should adjust their customer due diligence (CDD) in line with those risks.”



The consultation also wants European authorities to provide further risk guidance to financial institutions that are interested in conducting business with crypto companies.



The deadline to submit comments on the consultation is August 31, 2023.



As crypto becomes more mainstream, governmental bodies are soliciting the opinions of crypto firms on policy matters more often. For instance, the <a href="https://blockworks.co/news/uk-crypto-regulation-in-the-works">UK issued a proposal in February</a> 2023 that covered regulation on NTFs, <a href="https://blockworks.co/news/nuclear-bitcoin-mining-hits-snag">bitcoin mining</a> and stablecoins. Many firms <a href="https://blockworks.co/news/opinions-uk-crypto-policy">responded to the UK with agreement, criticism and suggestions</a>, including Binance, a16z, Polygon, Circle and <a href="https://blockworks.co/news/21shares-warns-uk-regulators">21Shares</a>.



Hong Kong is another place that had <a href="https://blockworks.co/news/hong-kong-to-lift-crypto-ban">a consultation period for digital asset regulation</a>, which led to the city state <a href="https://blockworks.co/news/hong-kong-cozy-crypto">allowing crypto trading for retail investors</a>. 



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Anti-money laundering

European Banking Authority Wants to Include Crypto in Money Laundering, Terrorism Guidelines

David Canellis

<div id="highlights-block_633d35fd8d5e9" class="highlights">
 <ul>
 <li>EU regulators are warning member states that the European Banking Authority will clamp down on crypto mixers and other privacy-preserving technologies</li>
 <li>Crypto asset service providers would be required to strictly monitor crypto tied to “self-hosted wallets”</li>
 </ul>
 
</div>



The European Union (EU) is preparing to warn its 27 member states of pending amped-up scrutiny of technologies that power anonymous transactions, such as <a href="https://cms.blockworks.co/crypto-mixers-and-privacy-coins-can-they-resist-censorship/" target="_blank" rel="noreferrer noopener">crypto mixers</a> and privacy wallets.



In a final draft for amendments to EU regulation <a href="https://www.eumonitor.eu/9353000/1/j4nvk6yhcbpeywk_j9vvik7m1c3gyxp/vjuo7ak2n0zf">2015/847</a> obtained by Blockworks, the governing body outlines pending changes to rules dictating how member states should police the digital asset sector.



The document mostly relates to crypto asset service providers (CASPs) — such as exchanges, wallets and staking platforms — and the steps they must take to stamp out money laundering and other illicit activity in line with Financial Action Task Force directives.



Incoming stipulations tied to how EU member states must enforce the so-called “travel rule” are known — crypto entities must log detailed information on users who transact 1,000 EUR ($998) or more in digital assets per year. Know-your-customer requirements include obtaining names, addresses, countries of origin and serial numbers from passports.



Transfers involving unique digital assets, such as NFTs, should be exempt — unless specifically detailed in the incoming Markets in Crypto-Assets (MiCA) regulation.



<h3 class="wp-block-heading">EU financial watchdog still after ‘self-hosted’ crypto wallets</h3>



Whether these demands extend to crypto wallets not under the auspices of exchanges has been a sticking point for the EU — and a matter of contention worldwide.&nbsp;



Previous drafts of the regulation listed transfers involving products and technologies “designed to enhance anonymity, including mixers or tumblers” as “high-risk factors of money-laundering, terrorist finance and other criminal activities.”



The final draft, however, says the European Banking Authority — the EU’s primary financial regulator — “shall pay particular attention to products, transactions and technologies that may favor anonymity such as privacy wallets, mixers or tumblers.”



The new move is especially pertinent considering the US Treasury’s sanctioning of Tornado Cash earlier this year. Protocol developer Alexey Pertsev is <a href="https://www.theblock.co/post/174016/arrested-tornado-cash-developer-alexey-pertsev-appeal-rejected">reportedly</a> set to remain in Dutch jail until at least November after his appeal was denied.


<div class="wp-block-image">
<figure class="aligncenter is-resized"><img loading="lazy" decoding="async" src="https://lh4.googleusercontent.com/SBtzyW5xo6IoVDLE7QEpXpWRi1zo1ZWXfKYZp-7GU8fnAKUH7dZ_djYQ7Rtqk61_TXpEiPsOTrs2NmtreaVzzZyP5_TBiicoEbiiXeYwoMVKPhGRFkcl8ODpJG0vUkVNbtkYwTfSS3lYwDDXbdEKB1qJADxRki7gNT469tVxVJVLLZ3SiN3u9rV3og" alt="" width="705" height="303"/><figcaption>Excerpt from the final draft</figcaption></figure></div>


In the latest draft, dated Sept. 30, regulators said CASPs “should in principle not be required to verify the information on the user of the self-hosted address.”



“Nonetheless, in case of a transfer whose amount exceeds 1,000 EUR and is sent or received on behalf of a customer of a crypto-asset service provider to or from a self-hosted address, that crypto-asset service provider should verify whether such self-hosted address is effectively owned or controlled by that customer,” the draft states.



Even so, the final draft contains fresh clauses. In situations of higher risk — like interacting with self-hosted wallets — CASPs should consider applying due diligence measures,&nbsp; including identifying counterparties in a given crypto transaction.


<div class="wp-block-image">
<figure class="aligncenter is-resized"><img loading="lazy" decoding="async" src="https://lh4.googleusercontent.com/li-VD1moAfMjgevD1NCXbjglxyLnc_c2pc5K3Z2KlCR6Me903Ju7-EDYdGi5CY_-GYIc9nCsMOIAKOvyBFrKFRc_nSosDGyYoQhhzODlw3EkwDSKhWywvTkaNeklCXkAcfbmcRXPOOiNWHyNS_cDVNG2qYQnZgX6j8Oy17L8f-yAyY1_lZcyA2pMBQ" alt="" width="694" height="604"/><figcaption>Excerpt from the final draft</figcaption></figure></div>


The wording would likely require CASPs to gather additional information about where the cryptocurrencies were obtained and be subject to further monitoring.



Representatives for the EU and the European Banking Authority did not immediately return requests for comment.&nbsp;



The complete updated set of regulations will come into force 20 days after its publication in the Official Journal of the European Union. Before that happens, the European Council and Parliament must <a href="https://www.consilium.europa.eu/en/council-eu/decision-making/ordinary-legislative-procedure/">agree</a> to ratify the proposal within three separate readings, with adjustments possible in between.&nbsp;



The process lasts on average 24 to 31 months, with this particular proposal document first drafted last year.



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