RTS package for MiCA regulation

In mid-June, the European Banking Authority (EBA) released a set of technical standards and guidelines under MiCAR, focusing on prudential issues such as own funds, liquidity requirements, and recovery plans.

RTS Package

The package of EBA regulatory products includes final draft regulatory technical standards (RTS) pertaining to:

• adjustment of own funds requirement and minimum features of stress testing programmes of issuers of asset-referenced tokens (ARTs) and of e-money tokens (EMTs) subject to such requirements.
• the procedure and timeframe for an issuer to adjust the amount of its own funds to 3% of the average amount of the reserve of assets when the relevant issuer is issuing an ART or EMT classified as ‘significant’.
• the liquidity requirements of the reserve of assets,
• the highly liquid financial instruments.
• the minimum content of the liquidity management policy and procedures.

Besides the RTS drafts, EBA published guidelines on recovery plans specifying the format and the content of the recovery plan that issuers need to develop and maintain.

A glimpse on the package

Issuers of significant asset-referenced tokens (ARTs) and electronic money tokens (EMTs) are required to establish comprehensive liquidity management policies.

They must implement robust strategies to manage liquidity risks, covering the identification, measurement, and reporting of such risks. These strategies should include:

• a risk management framework,
• a plan for managing reserve assets,
• a liquidity contingency plan and
• stress testing protocols.

The policies must be distinct for each ART and EMT to ensure segregation from other issuer activities, addressing specific risks and ensuring compliance.

Separate RTS are prepared regarding stress testing for ART issuers. These standards specify:

• the criteria for the assessment of ‘higher degree of risk’,
• the procedure for competent authorities to determine the period of time considered appropriate for issuers to increase the own funds amount to the higher own funds requirements and the measures to be taken to ensure the timely compliance thereof and
• a minimum set of requirements to issuers for the design and implementation of their stress-testing programmes.

Issuers must increase their own funds to 3% of the average reserve assets when their tokens are classified as significant. Issuers of asset-referenced tokens (ART) and e-money tokens (EMT) must maintain sufficient own funds to ensure financial stability. For significant tokens, the required own funds are higher, set at 3% of the average reserve assets, to address potential risks to financial stability and monetary policy.

The role of RTS

Regulatory Technical Standards (RTS) in European Union law are legally binding technical regulations developed by EBA to ensure consistent harmonization and application of EU legislation across Member States.

They provide detailed provisions and frameworks for specific areas within the broader legislative mandates, ensuring clarity, uniformity, and stability in financial and other regulated sectors.