On July 26, 2024, the Swiss Financial Market Supervisory Authority (FINMA) issued a guidance document elaborating on the regulatory environment for stablecoins. With the proliferation of stablecoin projects in Switzerland, FINMA has further restricted the local operations of these players. activity.
Swiss Regulation: Stablecoins may be deposits or capital raising schemes
FINMA states that stablecoins are designed to provide low price volatility and are typically backed by assets such as fiat currencies.
Stablecoin holders typically have payment claims against the issuer, which may be classified as "deposits" or "collective investment schemes" under banking law. The classification depends on whether the asset is managed for the benefit of stablecoin holders (indicating a collective investment scheme) or the issuer (indicating a bank deposit). Due to their use as payment mechanisms, stablecoins often fall under the regulatory umbrella of the Anti-Money Laundering Authority (AMLA).
Stablecoins have money laundering risks, and issuers are obliged to KYC holders
The Financial Action Task Force (FATF) has noted that stablecoins, like other cryptocurrencies, pose significant money laundering and terrorism financing risks. These risks include anonymous transfers, global reach and use in the layered stages of money laundering. The stability and store-of-value capabilities of stablecoins increase their appeal for illegal activities, including circumventing sanctions.
Stablecoin issuers are considered financial intermediaries under AMLA and must verify the identity of holders and beneficial owners. If in doubt, you must re-verify. FINMA highlights the reputational risks to the Swiss financial center from stablecoin-related money laundering and terrorist financing.
Stablecoin issuers must be licensed or guaranteed by a bank
Internationally, stablecoin issuers are expected to be subject to state supervision, in line with recommendations from the Financial Stability Board (FSB). In Switzerland, accepting deposits from the public generally requires a banking license, unless exceptions apply. Specifically, stablecoins backed by default guarantees provided by banks do not require a banking license if the guarantee meets certain conditions.
Default warranty requirements
FINMA sets minimum requirements for default guarantees related to stablecoins:
Individual rights of claim: Each customer must have an individual right of claim against the Swiss bank that provided the guarantee in the event of the insolvency of the issuer.
Comprehensive coverage: The guarantee must cover all public deposits, including interest.
Maintenance cap: The total deposit amount must not exceed the guaranteed cap.
Convenient claims: Customers must be able to claim against the guarantee easily and quickly.
Legal Defenses: Allows the bank to raise legal defenses.
These requirements enhance depositor protections but are not equivalent to the protections under a banking licence. Stablecoin holders are not covered by the deposit protection provisions of the Banking Act.
Bank reputation risk
Banks that provide default guarantees face reputational and legal risks, particularly if stablecoin issuers fail to meet AMLA obligations. Irregularities at the issuer level can harm a bank's reputation through contractual relationships. Dishonest stablecoin holders may take advantage of tacit guarantees, increasing regulatory costs and legal risks for banks.
Federal Council report: Acknowledging the need for action
The Federal Council's report on changes to banking law highlights the need to reassess exceptions such as default guarantees to ensure adequate protection. FINMA aims to address these risks in future regulatory discussions and ensure that default guarantees are appropriately managed within the regulatory framework.
It is difficult for stablecoin issuers to survive in the EU market
The current consensus on the regulatory framework for stablecoins in countries such as the European Union and the United Kingdom may not be optimistic for stablecoin issuers. Must have a local compliance license and require fiat currency reserves to be local. For USDT, which keeps its capital reserves secret and prefers to be "anti-landing" but actively cooperates with the requirements to fight crime, it may not be easy to meet the requirements of these legal areas.
(Circle becomes the first MiCA-compliant stablecoin merchant, will Tether’s leading position be shaken?)
This article The Swiss regulatory framework presents the biggest threat to stablecoins such as USDT: Issuers need to have a license and even pay interest. First appeared on Chain News ABMedia.
