The Swiss Financial Market Supervisory Authority (FINMA) has recently issued new guidance concerning the issuance and management of stablecoins.
The Swiss Financial Market Supervisory Authority (FINMA) has recently issued new guidance concerning the issuance and management of stablecoins. FINMA highlights that stablecoins not only present money laundering risks but also pose significant reputational threats to the Swiss financial sector.
Stablecoin Issuers as Financial Intermediaries
In the newly published guidelines, FINMA underscores the increased money laundering risks associated with stablecoins. The guidance also covers aspects of financial market law that are pertinent to stablecoin projects, discussing their potential impact on regulated financial institutions.
In a statement released on July 26, FINMA stressed that stablecoins could facilitate terror funding and sanctions evasion, thereby damaging the reputation of the Swiss financial industry. To mitigate these risks, FINMA recommends that stablecoin issuers be classified as financial intermediaries.
According to FINMA’s guidance, “The stablecoin issuer is considered a financial intermediary for the purposes of anti-money laundering legislation and must, among other things, verify the identity of the stablecoin holder as the customer in accordance with the applicable obligations (Art. 3 AMLA) and establish the identity of the beneficial owner (Art. 4 AMLA).”
Moreover, FINMA revealed that Swiss stablecoin issuers use default guarantees from banks, allowing them to operate without a banking license. However, FINMA insisted on the necessity of a framework to protect depositors. This framework, already developed by FINMA, sets “minimum requirements for the applicability of the exception for default guarantees.”
Addressing Risks Associated with Default Guarantees
The guidance elaborates that stablecoin holders must be informed about the default guarantee in the event of the issuer’s bankruptcy. Issuers must ensure that total deposits covered by the default guarantee do not exceed its upper limit.
To facilitate the prompt use of the default guarantee, FINMA emphasizes that claims must be due at the time of insolvency, specifically when bankruptcy proceedings are initiated against the stablecoin issuer.
While these measures enhance depositor protection, FINMA acknowledges that they do not match the level of protection provided by a banking license. Nonetheless, the Swiss regulator remains dedicated to addressing the risks associated with default guarantees.
