European banking authority finalises MiCA crypto framework

The European Banking Authority (EBA) has released the final draft of technical standards for the Markets in Crypto Assets (MiCA) framework, just ahead of the July deadline.

These detailed guidelines are aimed at ensuring the financial and technical safety of the Web3 sector within the European Union (EU).

Last year, the EU became one of the first regions globally to introduce comprehensive regulations for the crypto and Web3 sectors with MiCA.

In January 2023, the EU projected that it would take up to eighteen months for the EBA to finalize guidelines on MiCA's technical standards. The EBA has now completed this task ahead of schedule.

The final draft addresses several critical issues, including liquidity requirements, stress testing programs, asset reserves, and recovery plans.

The guidelines also cover regulatory oversight of asset-referenced tokens (ARTs) and e-money tokens (EMTs). ARTs maintain stable value by linking to other assets or fiat currencies, while EMTs are digital versions of traditional fiat currencies, including central bank digital currencies (CBDCs).

“These standards specify criteria for assessing higher degrees of risk and a minimum set of requirements for designing and implementing stress-testing programs,” the EBA announced. The guidelines also detail the procedure for authorities to establish a 25-working-day timeline for token issuers to manage their funds and mitigate risks for token holders.

Token issuers in the EU are required to adjust their own funds to 3% of the average reserve of their significant assets. Additionally, the EBA identified crypto assets backed by real estate or commodities as valuable tools for liquidity.

The EBA collaborated with the European Securities and Markets Authority (ESMA) to develop these comprehensive guidelines. Both organizations emphasized the need for streamlined recovery plans for Web3 firms to protect the EU's investor base, especially after the collapse of major crypto projects like FTX and Terra in 2022.

“These guidelines include procedures for identifying, measuring, and managing liquidity risk, contingency policies, and mitigation tools, as well as minimum aspects of liquidity stress testing,” the EBA stated. They also specify the content of communication and disclosure plans based on feedback received during the consultation period.

The MiCA framework was approved by the European Parliament Committee on Economic and Monetary Affairs (ECON) in October 2022 and came into force in June 2023. Its primary goals are to ensure consumer protection, prevent market manipulation, and curb financial crimes associated with digital assets within the EU.

The European Blockchain Observatory and Forum (EUBOF) praised the MiCA regulation in May, stating, “MiCA has been pivotal in setting a harmonized regulatory standard for crypto-assets, issuers, and service providers, focusing on consumer protection, transparency, and market integrity.”