Token redemption plan guidelines under MiCAR

The European Banking Authority (EBA) has issued guidelines outlining the content, periodic review and activation triggers for the redemption plan. These guidelines apply to all issuers of ARTs and EMTs with certain asset reserve provisions applying specifically to e-money institutions, if required by the competent authority. Covering key areas such as Proportionality, General Principles, Content, Governance and Triggers, the guidelines are designed to ensure effective crisis management through coordinated action between regulators. Set to take effect two months after their publication on the EBA website on the 9 of October 2024, these guidelines are intended to strengthen early intervention measures and enable the resolution authority to include ART or EMT as part of the resolution process when necessary. Ultimately, these safeguards aim to maintain financial stability during a crisis.

Key Takeaways

Regulation (EU) 2023/1114 (MiCAR) ensures that holders of ARTs and EMTs have a continuous right to redeem their tokens, even in stress scenarios. In situations where an issuer is unable to meet its obligations, the competent authority can activate a redemption plan, which must ensure orderly and timely token redemption without destabilising the market.

The redemption guidelines issued by the EBA are organised into four main sections:

• Proportionality: Ensures the plan’s level of detail and review frequency matches the issuer’s size and risk.
• General Principles: Focuses on equitable token holder treatment, liquidation strategy and ensuring maximum proceeds for redemption.
• Content and Governance: Covers processes for developing, updating and executing the plan, including identifying responsible parties and critical activities.
• Triggers: Defines when the redemption plan should be activated, such as insolvency or withdrawal of authorisation.

The responsibility lies with the issuer to ensure that a detailed redemption plan is created, outlining how tokens will be redeemed fairly, with minimal economic harm to token holders. The plan must include a reserve of low-risk assets to cover redemption claims in line with MiCAR regulations. If multiple issuers are involved, a coordinated redemption plan will need to be developed. Therefore, before the competent authority decides to carry out a redemption plan, it must first consult and coordinate with the relevant prudential and resolution authorities, ensuring appropriate coordination. These guidelines aim to provide a structured approach to token redemption which will ensure stability and protection for token holders.

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