MiCA's Significance Regime for Stablecoins - A Sledgehammer to Crack a Nut?

Abstract

This paper examines the significance regime for fiat-backed stablecoins (e-money tokens) within the recently adopted EU Markets in Crypto-Assets Regulation (MiCA) and compares it to other existing frameworks in banking and payment regulation denoting the concepts of “systemic importance” or “significance”. The frameworks covered in this comparison include the Basel Committee on Banking Supervision (BCBS) framework for global systemically important banks (G-SIBs), the European Central Bank (ECB) oversight framework for electronic payment instruments, schemes and arrangements (PISA), and the EU Single Supervisory Mechanism (SSM) Framework for significant credit institutions in the EU.

Distinctively, MiCA’s significance regime stands apart due to its dual purpose of transferring supervisory responsibility AND applying additional prudential measures. The comparison also sheds important light on the calibration of MiCA’s significance thresholds. To the extent classification as significant triggers the transfer of supervisory responsibility to the EBA we believe the thresholds to be broadly aligned with the SSM framework and also the PISA exemption criteria. In contrast, regarding the concept’s other purpose of filtering out stablecoins posing systemic risks that warrant application of increased prudential requirements, we believe the thresholds to be significantly too low and notably out of match with the BCBS G-SIB model that is similarly aimed at capturing systemic risks and introducing increased prudential requirements. Furthermore, MiCA's approach of a straightforward dichotomy ('yes or no') on the significance question lacks the nuanced, risk-based layers of the G-SIB model, which respond to the relative systemic risk posed by an institution.

As a consequence, MiCA creates a dramatic cliff-edge effect, imposing markedly elevated regulatory requirements on issuers of significant stablecoins without providing any discretionary agility allowing a proportionate, risk-adequate adjustment of requirements for issuers that may warrant transfer of supervisory responsibility to the EBA without posing sizeable systemic risks, if any. We, therefore, argue that the dual purpose of MiCA’s significance regime - transfer of supervisory responsibility and introduction of increased prudential requirements - should be disentangled. To complement our analysis and reflect some of the dynamics of the related global regulatory developments, the paper finally discusses how the EU regime for issuers of significant stablecoins diverges from other global approaches.

Keywords: Markets in Crypto-Assets Regulation, MiCA, Stablecoins, E-Money Tokens, Significance, Systemic Risks