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The European Banking Authority (EBA) has published its draft standards on what defines a "significant" stablecoin under the Markets in Crypto-Assets (MiCA) regulation, explaining the roles of supervisory colleges, custodians, trading platforms and other entities.
Published last week, the draft standards are under consultation until February 8, 2024 and are set to come into force on June 30, 2024.
The standards will apply both to stablecoins, referred to as asset-referenced tokens (ARTs) by the EBA, and e-money tokens (EMTs), which are also within the scope of MiCA.
As proposed by the EBA, a stablecoin or EMT will be classed as “significant” if one of the following two criteria are met:
- The stablecoin or EMT is held by at least 20 percent of the population of a single member state on a single day.
- The stablecoin or EMT is used in 1.25m or €250m of transactions in a single member state on a single day.
If a stablecoin or EMT meets either of these criteria, the EBA is required to establish a supervisory college to oversee its issuer within 30 calendar days.
The making of a college
The role of supervisory colleges under MiCA is to facilitate EBA oversight and to ensure cooperation and exchange of information between relevant agencies.
The supervisory colleges will be made up of competent authorities involved in the supervision of the “most relevant” entities that are connected to a “significant” stablecoin or EMT operation.
These “most relevant” entities are likely to be a mixture of custodians of reserve assets, payment service providers (PSPs) and trading platforms, including crypto-asset service providers (CASPs).
Under MiCA, a distinction is made between firms that issue a “significant” stablecoin, e-money institutions (EMIs) that issue a “significant” EMT, and credit institutions that issue a “significant” EMT.
This is because the first two of these are subject to reserve asset custody rules to which the third is not.
The first two must ensure that reserve assets are held by either credit institutions, investment firms or crypto-asset service providers (CASPs), whereas these rules do not apply to credit institutions that issue EMTs.
Custodians
For stablecoin issuers and EMIs that issue “significant” EMTs, the “most relevant” custodians will be the three entities that hold the highest value of reserve assets.
However, for credit institutions that issue EMTs, the “most relevant” entities will be the three entities that hold in custody the highest percentage of funds received in exchange for the EMT.
On both counts, the lookback period will begin on the day the stablecoin or EMT is determined to be “significant”.
The EBA notes that there may be cases where there are less than three “most relevant” custodians, and this can be reflected in the make-up of the supervisory college.
For example, if custody of reserve assets is concentrated in less than three entities, the EBA may reduce the total size of the supervisory college.
“This proposal aims at striking a suitable balance between ensuring an appropriate representation in colleges of relevant competent authorities and the need to ensure an effective functioning of colleges,” said the EBA.
It also “takes into account that an excessive number of members of the college could pose practical challenges for its effective functioning”.
Trading platforms
The three trading platforms where the “significant” stablecoin or EMT has had the highest number of average transactions per day can also be classed as “most relevant” entities.
As can the three trading platforms where the “significant” stablecoin or EMT has had the highest aggregated value of transactions per day.
Once again, the EBA may invite the competent authorities of less than three of these entities, should it determine that only one or two are truly significant to the stablecoin or EMT.
For the purpose of the technical standards, a “transaction” is defined as change in the legal person entitled to the stablecoin or EMT as a result of a transfer from one address to another, whether on-chain or off-chain.
PSPs
Similarly, the three PSPs that have executed the highest number of average transactions per day using a “significant” EMT can be classed as “most relevant” entities.
As can the three PSPs that have executed the highest average aggregate value of “significant” EMT transactions per day.
The EBA notes that CASPs involved in the transfer of EMTs may “fall under the definition of payment services” according to the revised Payment Services Directive (PSD2).
In such cases, those transfers should be provided by an entity authorised to provide such payment services in accordance with PSD2.
CASPs
A final category of “most relevant” entities whose competent authority may be included in a supervisory college are CASPs that provide custody and administration services on behalf of clients.
These could include the three CASPs that have executed the highest average number of transactions per day or the highest aggregated value per day using a “significant” stablecoin or EMT.
Other draft regulatory technical standards
Over the past week, the EBA has published five separate consultations on draft regulatory technical standards for firms involved in stablecoin and EMT activities under MiCA.
These consultations, which Vixio will explore in future articles, cover topics such as recovery plans, liquidity requirements, stress testing and transaction reporting for non-EU currency stablecoins and EMTs.
