An illustration picture taken in London on May 8, 2022 shows a gold plated souvenir cryptocurrency Tether (USDT) coin arranged beside a screen displaying US dollar notes. (PHOTO / AFP)

LONDON – The European Union's banking watchdog urged stablecoin issuers on Wednesday to voluntarily comply with "guiding principles" on managing risks and protecting consumers ahead of mandatory rules due in a year's time.

The EU approved its Markets in Crypto Assets Regulation (MiCAR) in April, the world's first comprehensive set of rules for trading cryptoassets like bitcoin and ether, and issuing stablecoins, a cryptoasset backed by a currency or asset.

The European Banking Authority (EBA) published on Wednesday for public consultation its first batch of measures to flesh out MiCAR requirements for issuing a stablecoin that would come into force on June 30, 2024.

They include provisions such as a permanent right of redemption, and rules for handling complaints.

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In this file photo dated March 10, 2021, flags of the European Union flutter in front of the headquarters of the European Central Bank (ECB) in Frankfurt am Main, Germany. (PHOTO / AFP)

EBA officials, however, expect a flurry of stablecoin issuance over the coming months now that the framework law has been approved, and called on firms to use its guiding principles on good governance and risk management ahead of the mandatory rules.

The European Banking Authority (EBA) published on Wednesday for public consultation its first batch of measures to flesh out MiCAR requirements for issuing a stablecoin that would come into force on June 30, 2024

"The statement is intended to encourage timely preparatory actions to MiCAR application, with the objectives to reduce the risks of potentially disruptive and sharp business model adjustments at a later stage, to foster supervisory convergence, and to facilitate the protection of consumers," the EBA said in a statement.

Separately the EU's European Securities and Markets Authority (ESMA) set out draft rules for so-called crypto asset service providers (CASPs) who trade cryptocurrencies.

The proposed rules for public consultation aim to authorise CASPs and ensure separation of customer cryptoassets and trading, and avoiding "co-mingling" of company and customer money, applying lessons from events such as the collapse of US crypto exchange FTX.

READ MORE: Bankrupt crypto exchange FTX has recovered $7.3b in assets

The ESMA rules would come into force in January 2025 and won't include a compensation scheme for customers who lose money invested in unbacked cryptoassets.

EBA will issue a second batch of draft rules in October that focus on capital requirements for stablecoin issuers, and how firms should deal with stablecoin redemptions in stressed markets.