The European Securities and Markets Authority (ESMA) has set strict deadlines for digital asset firms to limit non-compliant stablecoins under the European Union’s Crypto asset markets (MiCA) regulations no later than “at the latest” March 31.
In one January 17 statementESMA – the regulator tasked with overseeing the MiCA rules – urged crypto asset service providers (CASPs) to take swift action to limit or remove stablecoins that are not compliant with MiCA.
The full MiCA rules related to CASPs entered into force on 30 December 2024, with the provisions on stablecoins comes to play earlier, on June 30. The stablecoin provisions of MiCA came with a host of new obligations for issuers and providers of asset-referenced tokens (ARTs) – stablecoins that purport to maintain a stable value by referencing another value or right – and e-money tokens (EMTs) , stablecoins pegged to a fiat currency.
Only stablecoins issued by entities authorized by a National Competent Authority (NCA) – the relevant regulatory body of a Member State – can be offered in the EU.
In its latest update, ESMA clarified that restrictions on the existing services are expected to be finalized by the end of January 2025. However, to allow EU investors to liquidate or convert their position in non-MiCA stablecoins, CASPs can maintain digital asset services for these products on a “sell only” basis until the end of the first quarter of 2025 (March 31).
The EU’s financial watchdog called on CASPs to act “promptly” and warned that delays resulting in “sudden steps to align with MiCA” could potentially lead to “disordered crypto-asset markets.”
It added that “to mitigate potential disruptions and ensure a smooth and orderly transition, national competition authorities should ensure compliance with CASPs regarding non-compliant ARTs or EMTs as soon as possible and no later than the end of Q1 2025.”
This puts the onus on the supervisory authorities – the national competition authorities – in the EU’s 27 member states to enforce compliance with the new rules.
ESMA did not specify which stablecoins and issuers are currently non-compliant and therefore should be restricted, but the industry’s largest stablecoin issuers by market capitalization, Tether USDTis likely to be a prominent candidate due to its apparent reluctance to apply for MiCA permits.
Tether: To delete or not to delete
Uncertainty over whether Tether would apply for authorization led to the Coinbase exchange (NASDAQ: COIN) to delist the stablecoin in mid-December. Other major exchanges have adopted a more cautious approach, with Binance and Crypto.com continues to list USDT for EU customers – for now.
Tether has not officially disclosed whether it intends to become, or already is, compliant with the MiCA rules. However, the issuer recently discontinued support for the Euro stablecoin (EURT), citing objections to specific MiCA provisions.
“This decision is in line with our broader strategic direction, given the evolving regulatory framework surrounding stablecoins in the European market,” Tether said last November. “Until a more risk-averse framework is in place — one that fosters innovation and offers the stability and protection our users deserve — we’ve chosen to prioritize other initiatives.”
Other sources have also suggested that Tether does not hold or intend to file for the necessary MiCA license.
In a January 18 posts on LinkedInJuan Ignacio Ibañez, secretary general of the regulatory advisory group MiCA Crypto Alliance, advised CASPs to remove “non-compliant assets such as USDT” to meet their new regulatory obligations.
EU stablecoin rules
In terms of this new obligation, the MiCA framework was designed to come into force in stages. The provisions for stablecoin entered into force only on June 30, followed by the remaining requirements related to CASP, which entered into force at the end of December 2024.
The main new regulations for stablecoins include:
- Require issuers of ARTs and EMTs to be authorized by the competent authority of the Member State, usually the national central bank or financial regulator, and to publish a white paper containing information about the relevant token for investors;
- New conduct and governance requirements around marketing, disclosure of information and management of conflicts of interest;
- Supervisory requirements to ensure sufficient liquidity and ability to meet redemption requests; and
- Issuing and public offering of stablecoins is restricted without authorization and publication of a “white paper” approved by the National Competent Authority (NCA).
Issuers of EMTs were also henceforth required to comply existing EMD 2 obligations—the second e-money directive, developed to align EU requirements and supervise electronic money institutions — which includes informing authorities how they protect funds received in exchange for e-money issued, to ensure that they can “redeem at any time and at nominal value” the monetary value of the e-money held, e-money institutions must hold an initial capital of at least EUR 350,000 at the time of authorization, and e-money institutions are subject to legislation against money laundering.
Some ARTs or EMTs may also be considered “significant” due to their size or other factors and may, as a result, pose an increased systemic risk. For these, MiCA has added measures comparable with the regime applied to classify global systemically important banks, such as increased capital and liquidity requirements, stricter governance frameworks and intensified stress testing requirements.
The European Banking Authority (EBA) has supervisory responsibility for issuers of stablecoins deemed to fall into this category, maintaining more rigorous stress testing and oversight.
According to the MiCA regulation, a stablecoin is classified as significant or systemic if it meets three of seven criteria, such as having more than 5 billion euros ($6.28 billion) in reserves, over 10 million users, or processing over 500 million euros ( $616 million ) daily. Other considerations include whether it is interconnected with the financial system and whether it is used for payments on a global scale.
Another factor playing into Tether’s reluctance to apply for EU authorization may be that USDT would almost certainly fall into the systemically important category and thus be subject to the additional requirements of the EBA – beyond those that come with MiCA.
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