EBA to oversee EU-issued USDC reserves from Nov. 12

The European Banking Authority announced Oct. 14 that USDC issued by Circle Internet Financial Europe SAS is the European Union’s first significant e-money token under the Markets in Crypto-Assets Regulation, known as MiCA.

The classification applies to the EU-issued token and is the first of its kind among 45 e-money tokens notified under MiCA. From Nov. 12, the EBA will supervise the issuer’s own funds, or regulatory capital, and its reserve of assets. Its responsibilities will include liquidity requirements and recovery and redemption plans.

France’s Autorité de Contrôle Prudentiel et de Résolution will continue to supervise the issuer’s governance. The French regulator will retain responsibility for qualifying holdings, assessments of managers and shareholders, outsourcing and conflicts of interest. The EBA and ACPR will cooperate during the transfer of responsibilities.

MiCA gives the EBA supervisory authority over a significant e-money token issuer that operates as an electronic money institution. The rules add requirements for reserves, liquidity, own funds and plans to recover or redeem tokens.

Existing MiCA reserve rules require credit institutions to keep at least 30% of funds received for e-money tokens in separate accounts. The remaining funds must be invested in specified secure, low-risk and highly liquid assets denominated in the currency referenced by the token.

In a response to the European Commission’s review of MiCA dated Oct. 1, Circle proposed replacing mandatory minimum bank deposits with a minimum requirement for liquid assets. The company’s proposal described compulsory deposits as a source of bank credit and counterparty risk for issuers.

Circle’s response described the deposit requirement as 30% of reserve assets for e-money token issuers and 60% for issuers of significant tokens. It also proposed removing a 35% limit on exposure to a single sovereign and a cap on exposure to a banking counterparty based on 1.5% of that bank’s total assets. Circle indicated that the banking cap could require larger issuers to maintain relationships with dozens of banks.

Circle’s EU and U.S. entities issue USDC separately. Circle Internet Financial Europe SAS holds reserves for holders in the European Economic Area, while Circle Internet Financial LLC holds reserves for holders outside the region. The tokens are fungible, so USDC issued by either entity can generally be exchanged on the same basis.

Global USDC circulation figures do not show the reserve portfolio of the European issuer alone. Circle’s consultation response asked the EU to preserve the multi-issuance structure and establish safeguards for rebalancing between global and EU-specific reserves.

The EBA also announced a memorandum of understanding with the New York State Department of Financial Services to support cooperation and information exchange on stablecoin activities. The designation does not guarantee USDC’s dollar peg or provide deposit insurance or investor-compensation coverage. Circle’s white paper states that EU deposit-guarantee and investor-compensation schemes do not cover the token.