MiCA Crypto Framework Finalised By European Banking Authority Ahead of July Deadline

MiCA — or Markets in Crypto Assets — technical standards have been published by the European Banking Authority (EBA) on Thursday. Ahead of the upcoming July deadline, the EBA has published a detailed set of guidelines around technical standards that Web3 firms operating in the region will soon be mandated to adhere to. The aim is to ensure that the Web3 sector in the EU is safe, both financially as well as technically. The European Union (EU), last year, became one of the first regions in the world to regulate the crypto and Web3 sector with its MiCA regulations.

In January 2023, the EU had said that it could take up to eighteen months for the EBA to provide guidelines on the technical standards for MiCA regulations – a task that now stands completed before the estimated deadline.

MiCA regulations published by the EBA: What's new

The EBA has addressed a number of issues in its final draft of technical standards for MiCA, including those related to liquidity requirements, stress testing programme, asset reserves, and recovery plans, the EBA wrote in its official announcement.

Regulatory oversight on asset-referenced tokens (ARTs) and e-money tokens (EMTs) are also part of the EBA's guidelines. While ARTs maintain a stable value by being linked to other assets or fiat currencies, EMTs are digital representations of traditional fiat currencies. CBDCs (central bank digital currencies) are part of the EMT category of crypto assets.

“These standards specify the criteria for the assessment of higher degree of risk and a minimum set of requirements for the design and implementation of their stress-testing programmes,” the EBA said on Thursday. It has also spelled out the procedure for authorities to determine the timeline of 25 working days for token issuers to increase and manage their own funds, eliminating risks for the holders of their tokens.

Token issuers within the EU have also been directed to adjust their own funds to three percent of the average reserve of their significant assets. Furthermore, the EBA has identified that crypto assets backed by real estate or commodities can be seen as highly valuable tools for liquidity.

The EBA joined forces with the European Securities and Markets Authority (ESMA) to work on these guidelines that makes the MiCA regulation more comprehensive.

Both organisations agreed that that recovery plans for Web3 firms need to be properly streamlined to safeguard EU's investor base in light of the collapse of major crypto projects like FTX and Terra, that had left the sector reeling in 2022.

“These envisage procedures for identifying, measuring and managing liquidity risk, a contingency policy and mitigation tools as well as minimum aspects of liquidity stress testing. Considering the feedback received during the consultation period, the Guidelines further specify the content of the communication and disclosure plan,” the EBA said in its announcement.

About EU's MiCA regulations

The Markets in Crypto Assets (MiCA) framework was approved by the EU in October 2022 by the European Parliament Committee on Economic and Monetary Affairs (ECON). The legislation entered into force in June 2023.

The aim of this legislation is to ensure consumer protection, prevent market manipulation, and curb financial crimes linked to digital assets in the EU.

“MiCA has been pivotal in setting a harmonised regulatory standard for crypto-assets, issuers, and service providers, focusing on consumer protection, transparency, and market integrity,” the European Blockchain Observatory and Forum (EUBOF) had said, lauding the MiCA regulation in May this year.