The EU publishes MiCA technical standards to enhance Web3 security and transparency

The European Banking Authority (EBA) has published comprehensive technical standards for the Markets in Crypto Assets (MiCA) Regulation ahead of the July deadline. These guidelines aim to ensure financial and technical security in the Web3 sector within the European Union (EU). The EU was one of the first regions in the world to regulate the cryptocurrency and Web3 sectors with the introduction of MiCA regulations last year.

In January 2023, the EU indicated that it could take the EBA up to eighteen months to develop technical standards for MiCA. However, the EBA managed to complete this task ahead of the expected schedule. The newly published standards address a variety of critical issues, including liquidity requirements, stress testing programs, asset reserves and recovery plans. The EBA highlighted these areas in its official communication.

Regulatory oversight of asset tokens and e-money tokens

The EBA guidance also covers regulatory oversight of asset-based tokens (ART) and electronic money tokens (EMT). ARTs maintain a stable value by being pegged to other assets or fiat currencies, while EMTs represent digital versions of traditional fiat currencies, including central bank digital currencies (CBDCs). The standards define criteria for assessing higher levels of risk and establish a minimum set of requirements for the design and implementation of stress testing programs.

In addition, the EBA has detailed procedures for authorities to establish a 25-day timetable for token issuers to increase and manage their funds, with the aim of mitigating risks for token holders. Token issuers in the EU are advised to adjust their own funds to three percent of the average reserve of their significant assets. The EBA also stated that crypto assets backed by real estate or commodities can serve as very valuable liquidity tools.

Cooperation with ESMA

The EBA worked with the European Securities and Markets Authority (ESMA) to develop these comprehensive guidelines. Both organizations agreed on the need to improve recovery plans for Web3 companies to protect the EU investor base. This decision follows the collapse of large crypto projects such as FTX and Terra, which severely impacted the sector in 2022.

The guidelines define procedures for identifying, measuring and managing liquidity risk. They also include contingency policies, mitigation tools and minimum aspects of liquidity stress testing. The feedback received during the consultation period was taken into account to refine the content of the communication and disclosure plan.

Approval and implementation of the MiCA framework

The Markets for Crypto Assets (MiCA) framework was approved by the EU in October 2022 by the European Parliament’s Committee on Economic and Monetary Affairs (ECON) and entered into force in June 2023. The aim of these rules is to ensure consumer protection, prevent market manipulation , and reducing financial crime related to digital assets in the EU.

MiCA’s key role in the cryptocurrency ecosystem

The European Blockchain Observatory and Forum (EUBOF) has praised the MiCA regulation for establishing a harmonized regulatory standard for crypto assets, issuers and service providers. The regulation focuses on consumer protection, transparency and market integrity. EUBOF highlighted MiCA’s key role in setting these standards, which are crucial to the growth and stability of the EU crypto ecosystem.

By publishing these technical standards, the EBA has taken a significant step towards improving the regulatory framework for crypto assets. The guidelines are expected to contribute to a more secure and transparent Web3 environment, ensuring protection for both consumers and investors. Once the MiCA regulation comes into full force, it will likely serve as a model for other regions looking to regulate the burgeoning crypto sector.

Application

The EBA’s publication of the MiCA technical standards marks a milestone in the EU’s efforts to regulate the cryptocurrency and Web3 sectors. The comprehensive guidance covers key issues such as liquidity requirements, stress tests, asset reserves and recovery plans. Working with ESMA, the EBA has ensured that the guidelines are robust and effective in protecting the interests of investors and consumers. As MiCA continues to be implemented, it is expected to significantly improve the security, transparency and integrity of the EU digital asset market.