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The European Banking Authority (EBA), the banking watchdog of the European Union (EU), has launched consultations on draft capital requirements for stablecoin issuers.

EBA’s Regulatory Technical Standards (RTS) were announced on Wednesday and seeks to establish a common funds requirements framework for stablecoin companies ahead of the EU’s Markets in Crypto-Assets (MiCA) regulation.

According to EBA, the consultation will run until February 8, 2024.

Crypto regulation is in various stages across the globe, with one of the most criticised approaches to the industry in terms of regulation being the US. On the other hand, the European Union and the United Kingdom have taken robust steps towards prividing clarity for crypto as they seek to support innovation across the sector.

Stablecoins are top of the agenda for the EU as reflected in EBA’s proposal. In particular, the banking regulator’s draft guidelines revolve around the need enact into law clear requirements for stablecoin issuers and e-money providers. EBA wants these companies to prove they have the reserves they claim to hold.

The capital requirements include an obligtion for issuers to “adjust to higher own funds,” and to ensure potential redemptions are always available.

Per today’s announcement, the proposals were developed in collaboration with the European Securities and Markets Authority (ESMA) and the European Central Bank (ECB). They adhere to guidelines in Article 35(6) of Regulation (EU) 2023/1114 on MiCA, the regulatory agency noted.

MiCA was formally adopted by the European Council in May this year and will come into effect on June 30, 2024.

The EU’s latest regulatory move comes just days after the UK government announced its plans for crypto and stablecoin regulation last week. Other than outlining the role of the Financial Conduct Authority (FCA) and Bank of England, the HM Treasury’s proposals also included the issue of reserves for fiat-backed stablecoins.

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