Response to consultation on the adjustment of own funds requirements and design of stress testing programmes for issuers under MiCAR
Question 1. Is the procedure clear and the timelines for the issuer to provide views on the assessment and submit the plan reasonable?
The EBA has clearly set out the sequencing of the procedure for: (i) an NCA to provide an ART/EMT issuer with a draft plan for increasing the issuer’s own funds; (ii) the issuer to make representations on that plan; and (iii) the plan to be finalised. We respectfully request that the EBA includes an additional component of the plan in Article 1(2) of the draft RTS which would consider ‘whether the timeline within which the relevant issuer shall increase its own funds will have a detrimental impact on ART/EMT holders’. We consider that the draft RTS reflect well the implications for financial stability of the issuer and the wider financial system, but do not adequately take account of the implications for ART/EMT holders.
Question 2. Are the timeframes for issuers to adjust to higher own funds requirements feasible?
We broadly support the timeframes that have been proposed by the EBA. We would request that the EBA includes within the considerations for an NCA extending the timeframe for the adjustment of own funds to up to one year, the potential implications for ART/EMT holders (Article 2(2), draft RTS). Where an issuer can show that an adjustment to own funds within a shorter period may have a material impact on token holders, the NCA should have the discretion to extend the timeframe to up to one year.
Question 3. During the period when own funds need to be increased by the issuer, should there be more restrictions on the issuer to ensure timely implementation of the additional own funds requirements, for example banning the issuance of further tokens?
The issuer should not be subject to mandatory restrictions during the implementation of the additional own funds requirements. It is challenging to foresee with accuracy the range of market circumstances during which an issuer may need to adjust its own funds requirements. Prescribing restrictions ahead of time may hinder timely implementation of additional own funds requirements. For instance, banning the issuance of further tokens may impair token holder confidence, result in price volatility with unintended consequences or have other market effects on the token or other tokens in issuance. The EBA should provide for the possibility that issuers may determine measures that will support the implementation of additional own funds requirements and make representations on such measures to the relevant NCA.
Question 4. Do you agree with the criteria to identify if an issuer has a higher degree of risk?
We note that the criteria for determining if an issuer has a high degree of risk includes increased risk arising from external systems such as the underlying distributed ledger and from external parties such as trading platforms and CASPs. While such systems and platforms may increase risks to certain policy objectives, it is important to draw a distinction between factors which increase the risk of an issuer in its own right (ie within the issuer's direct control) and those factors that increase the risks arising from the use of an ART on an external system such as for payment which may be entirely outside of the issuer’s control.
We respectfully request that the EBA clarifies that when assessing the criteria to determine whether the ‘issuer has a higher degree of risk’ the source of the risk is appropriately considered by the NCA and reflected in remedial actions pursued by the NCA i.e., whether the risk has arisen because of an action or otherwise that the issuer has taken, or whether the risk has arisen from an externality or external party.
Question 5. Do you agree with the procedure to assess whether an issuer has a higher degree of risk?
We respectfully request that issuers have a defined right to provide input and make representations during the NCA’s assessment of whether the issuer has a higher degree of risk. This is consistent with the representations that the EBA has proposed for issuers when NCAs are developing a draft plan for the increase of own funds.
Question 6. Do you consider the criteria and their evaluation benchmarks sufficiently clear?
We believe it would be helpful to provide greater clarity and evaluation benchmarks for the determination of whether an increased risk arises from the systems and external parties in Article 3(c) of the proposed RTS.
Question 7. Do you agree with the need for a solvency and liquidity stress-test and the requirements of the stress-test?
We broadly support the EBA’s proposed stress-testing requirements, including the application of proportionality considering the issuer’s nature, scale and size, redemption rights and the complexity, concentration and composition of reserve assets.
Question 8. Do you agree with the frequency and time horizon of the solvency and liquidity stress-test? Should there be more differentiation between significant and not-significant issuers? Should the stress testing be more frequent for issuers of asset-referenced tokens referenced to official currencies?
We request that the EBA clarifies its proposal that issuers of sARTs and sEMTs will be required to undertake quarterly solvency stress tests, whereas non-significant ART/EMT issuers will only need to undertake semi-annual stress tests.
Question 9. Should a reverse stress testing requirements/methodology be introduced? Please provide your reasoning.
We do not believe it is necessary to introduce a reverse stress testing requirement or methodology.
Question 10. Do you have any other comments in relation to the stress-testing part in these RTS?
NA