José Manuel Campa of the European Banking Authority urged crypto players to start managing risks immediately and diversify their stablecoin reserves as new norms settle.
Head of European Banking Authority Says Stablecoin Reserves Need to Diversify
The Head of the European Banking Authority (EBA) said that future European Union rules for governing stablecoins will focus on ensuring that issuers hold diversified reserves, manage conflicts of interest and do not pass risks on to other players.
José Manuel Campa said that the Crypto Asset Markets rules of the block, known as MiCA, will come into effect from 2024, but crypto market players should start adjusting their operations now, noting that his institution will play a key role in implementation by drafting side legislation.
In an article for the Eurofi lobby group, Campa wrote that MiCA requires stablecoin issuers to have sufficient reserves to manage turbulence, and that "the EBA will place special emphasis on diversifying the deposit component of the reserve."
Campa highlighted the importance of stablecoin issuers to reduce conflicts of interest and identify links with custodians and trading platforms to ensure risks do not escalate within the crypto ecosystem.
While the law licensing wallet providers and exchanges has yet to be formally enlisted in the bylaws, "MiCA's lines are familiar by now and I encourage market participants to adjust their operations now to ensure sound risk management," Campa said.
The dramatic collapse of the algorithmic stablecoin terraUSD last year has focused the minds of regulators on how to manage cryptocurrencies tied to the value of the fiat currency or other assets such as gold.
The collapse of crypto exchange FTX in November and the revelation of its dark affiliation with trading arm Alameda Research also drew attention to the risks posed by large and often complex crypto holdings.
*Not investment advice.