The European Central Bank (ECB) revealed doubts about EU stablecoin regulation.
ECB published a response paper on the effect of certain stablecoin deposit reserve thresholds under the MiCAR regulatory framework.
As it stands, the current EU framework suggests licensed stablecoin issuers shall have around 30-60% of their reserves held as cash deposits in permitted EU banking institutions.
However, this consultation response presents a case to remove this clause altogether. Most notably, Tether declined to register in the EU as a result of this requirement.
Recently, MiCA’s deadline for European entities ended in July.
MiCA Stablecoin Reserve Requirement
ECB presents a case that there are continued improvements to be made to EU regulation.
Specifically, it outlines recommendations for managing stablecoins, otherwise referred to as Electronic-Money Tokens (EMTs), with native tokens labelled as Asset Referenced Tokens (ARTs).
The ESCB believes that some key elements of the framework should
be maintained, such as the prohibition on interest payments, while other elements
warrant a reassessment, such as the requirements regarding the reserves of assets
and own funds applicable to non-bank issuers of EMTs.
While the yield part falls in line with global regulations, including the U.S. Genius Act, as well as Singapore’s recent MAS stablecoin consultation, ECB critiques if the reserve rule is efficient.
Specifically, it proposes to review the liquidity of assets approved as collateral reserves, and more importantly, “the creditworthiness of the banks with which [issuers] place deposits”.
Additional points relate to allowing other forms of High Quality Liquid Assets (HQLAs) and the impact of lower yield revenues to issuers from holding assets in EU bank deposit accounts.
A similar discussion occurred in OCC’s response from industry on Genius Act rulemaking. Here, institutions such as BlackRock offered their thoughts on using Government Money Market Funds (GMMFs) in reserves.
While concern for the financial stability and Liquidity Coverage Ratios (LCRs) of banks is noted, the ECB is also trying to increase the appeal of EU-based tokenized money markets, overnight repos, and short-term bonds as alternative forms of collateral.
Therefore, it is recommending to scrap the minimum bank deposit requirements for significant and non-significant stablecoin issuers, instead proposing a daily and weekly liquidity bucket system.
There is room to expand criteria for non Euro-denominated stablecoins as well, depending on currency risk.
