Opinion RTS to specify the HLFI with minimal market risk credit risk and concentration risk

General Information

- Document: Opinion of the European Banking Authority (EBA) on the final draft regulatory technical standards (RTS) concerning the specification of highly liquid financial instruments (HLFI) with minimal market, credit, and concentration risk.

- Author: European Banking Authority (EBA).

- Date: October 9, 2025.

- Scope: Specification of HLFI under Regulation (EU) 2023/1114 (MiCA) relating to crypto-asset markets, notably for issuers of asset-backed tokens and electronic money institutions.

- Themes: definition of HLFI, liquidity requirements, market, credit and concentration risks, concentration limits, consistency with existing prudential regulation (notably LCR, UCITS Directive).

- Target population: issuers of asset-backed tokens, institutions issuing electronic money tokens.

- Sector: finance, crypto-assets, banking and financial regulation.

- Period: text and opinion published in 2025, based on consultations conducted in 2023-2024.

Executive Summary

This document presents the formal opinion of the EBA on the amendments proposed by the European Commission to the final RTS draft submitted by the EBA, aiming to define highly liquid financial instruments (HLFI) with minimal market, credit, and concentration risk, within the MiCA Regulation (EU 2023/1114). This topic is crucial as it ensures that asset reserves of issuers of asset-backed tokens are composed of liquid and safe instruments, thus guaranteeing immediate and reliable convertibility of tokens, even under financial stress.

The EBA's main findings are that several amendments proposed by the Commission are substantial and deviate from the legal mandate, notably by allowing investments in non-HLFI assets, which would compromise the liquidity and safety of reserves. The EBA highlights that these changes could create regulatory inconsistencies, risks of circumvention, and increased burden for supervisory authorities.

In particular, the EBA rejects the automatic classification of money market funds (MMF) as HLFI due to their history of liquidity stress, and criticizes the removal of concentration limits at the manager level, which would increase concentration and correlation risks.

The EBA recommends maintaining a strict definition of HLFI consistent with the liquidity coverage ratio (LCR) requirements applicable to banks, applying prudent concentration limits, notably a 5% cap per management company for UCITS, and retaining the look-through mechanism for collective funds to avoid regulatory arbitrage.

Finally, the EBA accepts editorial amendments that improve clarity without changing the policy framework. It submits an amended RTS draft to the Commission, emphasizing the need to ensure consistency, proportionality, and legal certainty in regulating asset reserves of token issuers.

Context and Objectives

The document was drafted in response to the transmission by the European Commission of amendments to the final RTS draft submitted by the EBA, under the MiCA Regulation (EU 2023/1114) governing crypto-asset markets. The main objective is to specify financial instruments considered highly liquid and presenting minimal risk to ensure the safety and liquidity of asset reserves of issuers of asset-backed tokens and electronic money institutions.

The regulatory context includes the need to guarantee immediate and reliable convertibility of tokens, notably under stress conditions, in line with existing prudential requirements such as the liquidity coverage ratio (LCR) for credit institutions and the diversification and concentration rules provided by the UCITS Directive.

This document aims to analyze the amendments proposed by the Commission, assess their compliance with the legal mandate, their impact on financial stability, regulatory consistency, and administrative burden for competent authorities. The scope concerns the strict perimeter of HLFI and the consideration of market, credit, and concentration risks in asset reserves.

Summary of Key Points by Theme

Definition of HLFI:

- HLFI must be level 1 assets according to Delegated Regulation (EU) 2015/61, without haircut, or very high-quality covered bonds limited to 35% of the reserve.

- For tokens referenced to non-official monetary assets, financial instruments or derivatives following these assets are also eligible.

- Instruments must meet operational requirements similar to those of the LCR, with certain derogations adapted to the token context (p. 8-14).

Risks and regulatory consistency:

- The EBA insists on excluding non-HLFI assets from reserves, except if contributed in kind at issuance, to preserve liquidity and immediate convertibility (p. 2-4).

- The Commission proposes including all money market funds (MMF) as HLFI, which the EBA rejects due to MMF liquidity stress episodes, notably in March 2020, and non-followed ESRB recommendations (p. 4-6).

- The EBA criticizes the removal of concentration limits per manager for UCITS, which would increase concentration and correlation risks, and recommends maintaining a 5% cap per management company (p. 5).

Concentration limits:

- 35% limit for high-quality covered bonds.

- 10% limit for other level 1 assets.

- 5% limit for other instruments, including UCITS, with application of look-through to avoid circumvention (p. 14-15).

Unwind mechanism:

- Secured financing operations, guaranteed loans, or collateral swaps must be taken into account in reserve calculation, with adjustment at maturity (p. 15).

Management of characteristic changes:

- If an instrument loses HLFI conditions, the issuer must prepare and submit a restoration plan to the competent authority within 5 working days (p. 15).

Editorial changes:

- Improvement of clarity and consistency of articles and recitals, without changing principles (p. 5-6).

Main Findings and Lessons Learned

Established facts:

- MMF showed liquidity weaknesses during recent crises, notably in March 2020, justifying their exclusion from the HLFI list (p. 4-5).

- The existing regulatory framework (LCR, UCITS Directive) sets strict liquidity and concentration requirements that must be respected to ensure reserve stability (p. 8-11).

Assumptions:

- Asset liquidity must be at least equivalent to that of high-quality assets used in the LCR to guarantee immediate token convertibility (p. 3-4).

Author interpretations:

- The Commission's amendments, particularly the inclusion of MMF as HLFI and modification of concentration limits, create regulatory arbitrage risk and weaken the prudential framework's consistency (p. 4-6).

- Excluding non-HLFI assets from reserves, except contributions in kind, is necessary to maintain liquidity and safety (p. 2-4).

Uncertainties:

- Future market and regulatory developments could influence HLFI definition and composition.

- The precise impact of proposed amendments on supervisory authorities' administrative burden remains to be measured (p. 2-3).

Conclusions and Recommendations

The EBA rejects several substantial amendments proposed by the Commission, notably those allowing direct investment of reserves in non-HLFI assets and the automatic classification of MMF as HLFI. It stresses that these changes compromise liquidity, safety, and regulatory consistency.

It recommends maintaining a strict HLFI definition consistent with LCR requirements, applying prudent concentration limits (35% for covered bonds, 10% for level 1 assets, 5% for others, with a cap per management company for UCITS), and retaining the look-through mechanism for collective funds.

The EBA accepts editorial changes that clarify the text without altering its substance.

It submits an amended RTS draft to the Commission, emphasizing the need to ensure consistency, proportionality, and legal certainty in regulating asset reserves of token issuers, to guarantee immediate and reliable token convertibility in all circumstances.

The document also specifies issuers' obligations in case of changes in HLFI instrument characteristics, notably preparing a restoration plan submitted to the competent authority.