This final report presents guidelines on redemption plans for issuers of asset-referenced tokens and e-money tokens. It outlines compliance and reporting obligations, as well as essential elements to include in a redemption plan, including proportionality principles and review periodicity. The guidelines apply to all token issuers and aim to ensure an orderly redemption process when the competent authority assesses…
- Title: Final report on Guidelines on redemption plans under MiCAR
- Author: European Banking Authority (EBA)
- Date: 2024
- Type: regulatory guide
- Scope: guidelines on redemption plans for issuers of asset-referenced tokens (ART) and e-money tokens (EMT) under Regulation (EU) 2023/1114 (MiCAR)
- Target population: issuers of ARTs and EMTs, European competent authorities
- Sector: crypto-asset markets in Europe
- Period: application from two months after publication of official translations (2024)
- Pages provided: first 37 pages out of 51
The document concerns the guidelines (GL) established by the EBA to frame the redemption plans that issuers of asset-referenced tokens (ART) and e-money tokens (EMT) must develop pursuant to Articles 47 and 55 of the MiCAR Regulation (EU 2023/1114). These plans aim to ensure an orderly redemption of tokens when the competent authority considers that the issuer is unable or likely to be unable to fulfill its obligations (pp. 3-5).
The importance of these plans lies in protecting token holders by ensuring their redemption rights are respected even under stress, while avoiding disruptions in reserve asset markets. The regulation notably requires issuers to hold an asset reserve securing redemption rights, except for certain EMT issuers (pp. 6-9).
The GL specify:
- The detailed content of the plan, including general principles, governance, operational processes, management of critical activities, communication, and modalities for liquidating the asset reserve (pp. 15-26).
- The periodicity of review and update, with an annual frequency recommended for significant or complex issuers, and updates in case of material changes (p. 27).
- Activation triggers of the plan, beyond insolvency, resolution, or withdrawal of authorization, with precise criteria related to financial situation, liquidity, governance, and market perception (pp. 27-30).
The GL emphasize coordination between MiCAR competent authorities, prudential authorities, and resolution authorities, notably to avoid premature activations of the plan that could harm crisis management or resolution measures (p. 29).
Key recommendations include:
- Coverage of redemption-related costs by liquidation of the asset reserve only after satisfying holders’ claims, excluding any form of redemption fees (pp. 31-34).
- Adoption of a common plan for joint issuances by multiple issuers, with a common section and a specific section for each issuer (pp. 25-26, 33-34).
- Implementation of a clear and accessible communication plan to promptly inform holders upon plan activation (pp. 24-25).
Finally, the report underlines that these GL aim to harmonize practices within the EU, reduce risks of redemption runs (crypto runs), and strengthen financial stability while protecting token holders (pp. 31-37).
The MiCAR Regulation (EU 2023/1114) establishes a regulatory framework for issuers of ARTs and EMTs, notably imposing a permanent redemption right for token holders, including under stress situations (p. 6).
Facing risks linked to massive redemptions that could cause token depreciation and market instability, the regulation requires issuers to develop an operational redemption plan to ensure an orderly and fair redemption (pp. 6-7).
The EBA is mandated to define guidelines specifying the content, update frequency, and activation triggers of these plans, to ensure harmonized application in the EU (pp. 3, 6-7).
The document aims to:
- Clarify regulatory requirements on redemption plans
- Define governance, risk management, and communication principles
- Ensure coordination between competent and prudential authorities
- Prevent redemption run risks and protect token holders
Limitations concern the exclusion of asset reserve provisions for certain EMT issuers not subject to this obligation, as well as the distinction between redemption plans and resolution plans (pp. 7, 26-27).
Proportionality:
- The level of detail and update frequency of redemption plans must be proportionate to the size, complexity, nature of tokens, volatility and composition of the asset reserve, as well as the presence of multiple or joint issuances (p. 15).
- Significant or complex issuers must review their plan annually, others upon material change (p. 15).
General principles and objectives:
- Ensure fair and simultaneous (pari passu) treatment of holders of identical tokens, except contrary provisions in the white paper (pp. 16-17).
- Suspension of individual redemption requests upon plan activation to guarantee orderly collective liquidation (p. 17).
- The asset reserve must be used to satisfy holders’ claims; liquidation costs may only be deducted after setting aside amounts due to holders (pp. 17-18).
- Costs must be transparent, reasonable, and not constitute redemption fees prohibited by MiCAR (p. 17).
Plan content:
- Clear governance with identification of those responsible for development, updating, and execution of the plan, integration into the internal control framework (pp. 19-20).
- Mapping of critical internal and outsourced activities necessary for execution, with description of contracts and continuity guarantees (pp. 20-22).
- Detailed operational process for identifying holders, collecting and destroying redeemed tokens, and paying claims (pp. 22-24).
- Communication plan including a clear, accessible public notice specifying steps, timelines, and modalities for submitting redemption requests (pp. 24-25).
Joint issuances:
- Obligation of a common plan with a shared section and a specific section for each issuer, coordination between issuers and competent authorities (pp. 25-26).
Interaction with other procedures:
- Required consistency between redemption plans, recovery plans, and resolution plans, notably for institutions subject to Directive 2014/59/EU and Regulation 2021/23 (pp. 26-27).
Activation triggers:
- Explicit cases: insolvency, resolution, withdrawal of authorization (p. 27).
- Additional criteria: financial situation (capital, liquidity, asset reserve), deficient governance, reputation, adverse market conditions, risk of redemption run (pp. 28-30).
- Necessity of a global analysis and expert judgment, without automatism (pp. 29-30).
- Mandatory coordination with prudential and resolution authorities before activation in crisis measures (p. 29).
Compliance and reporting obligations:
- Competent authorities must notify their compliance within two months following official publication (pp. 12-13).
Data protection and anti-money laundering:
- GDPR compliance for personal data contained in plans (p. 16).
- Involvement of intermediaries subject to the AMLD for non-obliged issuers, to ensure AML/CFT controls during redemption (pp. 21-22).
Cost-benefit analysis:
- Benefits for holders: increased protection, transparency, fair treatment, stability (pp. 35-36).
- Costs for issuers: preparation, coordination, liquidation costs (pp. 35-36).
- Costs for authorities: resources for evaluation and supervision (p. 36).
- European harmonization avoiding regulatory arbitrage (pp. 31-37).
Established facts:
- ART and EMT issuers must have an operational redemption plan ensuring orderly, fair, and swift redemption of tokens (pp. 3-5).
- The asset reserve plays a key role in guaranteeing redemption rights, with strict requirements on its composition, holding, and liquidation (pp. 6-9).
- Competent authorities have a central role in evaluating plans and deciding activation, in coordination with prudential and resolution authorities (p. 29).
Assumptions:
- Implementation of the GL will promote market stability and holder confidence (pp. 31-37).
- Coordination between issuers and authorities will avoid premature or uncoordinated activations (pp. 25-26, 29).
Interpretations:
- Proportionality allows adapting complexity and update frequency of plans according to issuer and token profile (p. 15).
- Coverage of liquidation costs after satisfying claims protects holders against disguised fees (pp. 31-34).
Uncertainties:
- Lack of practical experience on implementing redemption plans in this emerging sector (p. 33).
- Exact impact of plans on preventing redemption runs remains to be observed (p. 31).
- Adaptation of plans to rapid crypto market developments and cyber risks (pp. 27, 79).
These elements highlight the need for careful supervision and regular updating of the GL.
The EBA recommends that ART and EMT issuers develop and maintain redemption plans compliant with these guidelines, including:
- Clear governance with identification of responsibilities
- Precise mapping of critical activities and contracts ensuring continuity
- Detailed operational processes for managing redemption requests, token destruction, and payment
- An accessible and transparent communication plan
- Liquidation strategies adapted to market conditions, aiming at maximizing proceeds
- Enhanced coordination in case of joint issuance by multiple issuers
- Annual review for significant issuers or upon material change
Competent authorities must assess these plans, require modifications if necessary, and trigger the plan only after consulting prudential and resolution authorities in crisis measures.
The EBA favors that liquidation costs be covered only after satisfying holders’ claims, excluding any form of redemption fees.
These measures aim to ensure holder protection, market stability, and regulatory harmonization within the EU.
The implementation timeline foresees entry into force two months after official publication in all EU languages (pp. 5, 14, 31-37).
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