Connect with us
Active Currencies 14822
Market Cap $2,408,947,562,383.00
Bitcoin Share 50.63%
24h Market Cap Change $2.21

EU banking regulator suggests the following to reduce risk in crypto sector

2min Read

The European Banking Authority Chair writes that the diversification of stablecoin reserves is needed for risk management.

Share this article

  • The European Banking Authority Chair emphasized the diversification of stablecoin reserves for robust risk management.
  • He also stated that while the EU’s MiCA regulations would take effect in 2024, crypto exchanges should begin adapting to these developments right away.

The European Banking Authority (EBA) Chair, José Manuel Campa, has stated that the impending European Union laws governing stablecoins will focus on ensuring issuers maintain diverse reserves, handle conflicts of interest, and do not entangle other exchanges when gone berserk.

Campa made these recommendations in an article he wrote for the Eurofi magazine.

He wrote that while the EU’s Markets in Crypto Assets Rules (MiCA) are slated to take effect in 2024, crypto exchanges should begin adapting to these developments right away.

MiCA requires stablecoin issuers to have sufficient reserves to manage volatility, and the EBA will ensure that these entities maintain reserves that take into account the deposit component’s diversification.

EBA will play a major role in MiCA’s implementation by drafting subsidiary legislation.

While the law has not yet been legally enacted, the parameters of MiCA are now well-known and crypto exchanges should update their functions to adapt to the new developments to guarantee appropriate risk management, suggested Campa.

Campa emphasized the necessity of stablecoin issuers avoiding conflicts of interest and mapping relationships to custodians and trading exchanges to prevent risks from entrenching the entire crypto ecosystem.

Multiple crypto failures make regulators cautious

The drastic collapse of algorithmic stablecoin TerraUSD in May 2022 drew the attention of regulators. The authorities are now working on how to control cryptocurrencies that are linked to the value of fiat money or other assets such as gold.

The collapse of FTX in November 2022 and the ensuing global crypto crisis also made regulators aware of the dangers posed by such large crypto corporations.

Campa stressed that risk management is not a one-way street and regulatory bodies should implement their policies at a multilateral level.

As a result, in addition to regulating and overseeing the crypto asset industry, the EBA must strengthen the framework for regulating other sections of the financial system, the banking sector in particular.

Share

Saman Waris works as a News Editor at AMBCrypto. She has always been fascinated by how the tides of finance and technology shape communities across demographics. Cryptocurrencies are of particular interest to Saman, with much of her writing centered around understanding how ideas like Momentum and Greater Fool theories apply to altcoins, specifically, memecoins. A graduate in history, Saman worked the sports beat before diving into crypto. Prior to joining AMBCrypto 2 years ago, Saman was a News Editor at Sportskeeda. This was preceded by her stint as Editor-in-Chief at EssentiallySports.
Read the best crypto stories of the day in less than 5 minutes
Subscribe to get it daily in your inbox.
Please check the format of your first name and/or email address.

Thank you for subscribing to Unhashed.