New EU Rules Set to Shake Up Crypto Pay: What Token Issuers Need to Know

The European Banking Authority (EBA) is making waves again with proposed rules that could significantly impact how crypto firms structure their compensation packages. These draft regulations, tied to the EU's Markets in Crypto-Assets (MiCA) law, aim to rein in excessive risk-taking and ensure fair pay practices in the rapidly growing world of digital assets.

Why the Fuss About Pay?

In the traditional financial sector, lavish bonuses and incentives have sometimes been blamed for fueling risky behaviour that can lead to market instability. The EBA wants to prevent similar issues in the crypto space. Their proposed rules would introduce a framework for remuneration policies specifically for issuers of significant asset-referenced tokens (ARTs) and e-money tokens (think stablecoins and other digital assets tied to real-world value).

What's in the Fine Print?

The draft regulations outline critical requirements for these token issuers:

• Gender-Neutral Pay: Equal pay for equal work, regardless of gender, is a fundamental principle.

• Risk-Aligned Rewards: Bonuses and incentives should be tied to long-term performance and risk management, not just short-term gains.

• Capping Variable Pay: Bonuses could be limited as part of an employee's compensation to discourage excessive risk-taking.

• Pay in Tokens (Maybe): Issuers of ARTs might be allowed to pay some bonuses in their tokens, but this is still under discussion.

• Clawbacks and Deferrals: The rules could include provisions for clawing back bonuses if things go wrong later on and delaying part of the bonus payout to incentivise sustainable performance.

The Bigger Picture

These proposed rules are part of a broader effort to create a level playing field between crypto firms and traditional financial institutions. The EBA wants to ensure that similar rules apply to similar activities, regardless of whether it's a bank or a crypto company.

What This Means for Crypto Firms

If you're an issuer of significant tokens, it's time to pay attention. These rules could mean a major overhaul of your compensation structures. You'll need to:

• Review and Revise: Scrutinize your existing remuneration policies to ensure they align with the new requirements.

• Strengthen Governance: Ensure you have strong internal controls and risk management processes to monitor how pay is structured and awarded.

• Prepare for Reporting: Be ready to demonstrate compliance with the new rules to regulators.

Next Steps

These are just draft regulations for now. They'll go through a review process before becoming final, but it's a clear signal of where regulators are heading. Companies in the crypto space should start planning now to adapt to these changes.