Swiss finance regulator updates rules for stablecoin issuers

The Swiss Financial Market Supervisory Authority (FINMA), the country’s top finance sector regulator, has proposed new guidelines for stablecoin issuers to strengthen oversight and mitigate risks. Notably, the guidelines include classifying stablecoin issuers as financial intermediaries.

The proposal comes in the wake of increased global attention to stablecoin legislation and the new stablecoin provisions of the European Union’s landmark Market’s in Crypto Asset Regulation (MiCAR), which came into force on July 1.

Stablecoins are digital assets that aim to maintain a stable value relative to a specified asset or pool of assets, typically fiat currency.

According to a guidance document published July 26, FINMA is seeking to update Switzerland’s stablecoin rules by classifying issuers as financial intermediaries, drawing attention to the increased risks of money laundering and terrorist financing, and introducing minimum requirements for stablecoin issuers seeking “default guarantees” from banks—an alternative to a FINMA license.

In terms of the latter measure, businesses accepting deposits from the public generally require a banking license in accordance with the recommendations of the Financial Stability Board (FSB) from 2023. However, various stablecoin issuers in Switzerland use “default guarantees” from banks, meaning they don’t require a license from FINMA.

To protect depositors and ensure that unlicensed issuers meet certain safety standards, FINMA has developed minimum requirements for stablecoin issuers seeking default guarantees:

• In the event of the bankruptcy of the stablecoin issuer, each customer must have their own claim against the Swiss bank issuing the default guarantee;
• The default guarantee must cover at least the total of all public deposits, including any interest earned by customers;
• Deposits must not exceed the upper limit of the default guarantee;
• The provisions of the default guarantee must not prevent the depositor from making an uncomplicated, rapid call on the default guarantee;
• Defenses and objections by the bank to the extent provided for by law are permissible.

FINMA also focused on addressing financial and reputational risks. The Swiss finance watchdog emphasized that stablecoin issuers must be subject to the same anti-money laundering (AML) obligations as traditional financial institutions, including verifying the identity of stablecoin holders and establishing the identity of beneficial owners.

“The stablecoin issuer is therefore considered a financial intermediary for Anti-Money Laundering legislation and must, among other things, verify the identity of the stablecoin holder as the customer following the applicable obligations (Art. 3 AMLA) and establish the identity of the beneficial owner (Art. 4 AMLA),” said FINMA.

Digital assets in Switzerland

Up until 2018, Switzerland’s interactions with the digital asset space were defined by stringent regulations and unwelcoming banks, causing the country to lose business to friendlier peers such as Lichtenstein, Gibraltar, and the Cayman Islands.

This was not a great state of affairs for digital asset-embracing regions in the country, particularly Zug, known as the Swiss “crypto valley,” home to between 200 and 300 digital asset entities. So, the country began gradually introducing new rules to create certainty for the industry while providing consumer protection for investors.

In 2020, Lawmakers in Switzerland passed new rules in the form of amendments to corporate and finance laws, giving blockchain and digital currency a legal footing for the first time.

The laws offered definitions for the exchange of digital securities, spelled out the legal process for the seizure of digital assets in bankruptcy, and outlined the role of trading exchanges regarding AML policies and other compliance measures. These new laws came into effect in February 2021.

More recently, Switzerland hit the digital asset news again when, after nearly nine months of experimenting with a wholesale central bank digital currency (CBDC), the Swiss National Bank (SNB) announced an extension of the pilot to explore new use cases and expand the scope.

Phase 1 of the pilot, known as Project Helvetia III, ran from late 2023 to June 2024 and will be continued for two more years, focusing on tokenized securities settlement using wholesale CBDCs.

Watch: Stablecoins with Daniel Lipshitz