The European Union's banking watchdog has put forward proposals that would require issuers of stablecoins backed by fiat currencies to have sufficient funds to fully bail out investors.
EU Watchdog Sets Capital and Liquidity Rules for Stablecoin Issuers
The European Banking Authority (EBA) has proposed minimum capital and liquidity requirements for issuers of stablecoins and other types of digital tokens.
The EBA has launched public consultations on liquidity requirements for the reserve of assets backing a stablecoin, meaning only eligible assets of sufficiently high quality can be used.
The EBA said issuers of stablecoins backed by a currency must be able to offer investors an equal amount of full cash.
“Following the application of the guidelines, the supervisor may strengthen the liquidity requirements of the relevant issuer to cover these risks based on the outcome of the liquidity stress test,” the EBA said in a statement.
The EBA noted that banks may be exempt from liquidity requirements in some cases, given that they already have liquidity buffers under existing EU bank capital and liquidity rules.
The proposed liquidity rules ensure that stablecoin issuers, which can be non-bank institutions, meet the same safeguards and also avoid unfair capital or liquidity advantages over banks.
Earlier this week, the UK's financial regulators put forward initial proposals for regulating stablecoins in the first leg of UK rules for the crypto sector.
*This is not investment advice.