Swiss FINMA Publishes Guidance on Stablecoins

On 26 July 2024, the Swiss Financial Market Supervisory Authority (FINMA) published Guidance 06/2024 titled:

"Stablecoins: Risks and Challenges for Issuers of Stablecoins and Banks Providing Guarantees"

This guidance outlines FINMA’s supervisory expectations and interpretations of Swiss financial market laws as they apply to stablecoin projects.

The Swiss Financial Market Supervisory Authority FINMA today published guidance on the issuance of stablecoins. In it, it comments on default guarantees, the associated risks and discloses its practice on stablecoins. It further draws attention to the increased risks in the area of money laundering.

• https://shorturl.at/bTU1r

Here's a summary of the key points:

Legal Classification of Stablecoins

Stablecoins are typically pegged to fiat currencies or other assets to maintain a stable price.

FINMA distinguishes between:

• Deposits under banking law: If the underlying assets are held for the account and risk of the issuer, the stablecoins are considered deposits, requiring a banking license or a FinTech license under the Swiss Banking Act.
• Collective investment schemes: If assets are held for the account and risk of the stablecoin holder, the stablecoins may be classified as units of collective investment schemes

AML/CFT Requirements

Stablecoins pose similar money laundering and terrorist financing (ML/TF) risks as other crypto assets, but with added concerns due to their price stability and store-of-value function. FINMA highlights:

• Anonymous transfers via self-managed wallets
• Global reach and cross-border usability
• Suitability for the layering stage in ML
• Potential for sanctions evasion and terrorism financing

To mitigate these risks, FINMA requires:

• Full identification of all stablecoin holders, including intermediate holders—not just the buyer or redeemer.
• Transfer restrictions to prevent transactions with non-whitelisted parties.
• KYC/CDD compliance under the Anti-Money Laundering Act (AMLA), including:
• Identification of the customer
• Determination of the beneficial owner
• Repetition of procedures if doubts arise

Banking Guarantees

Stablecoin issuers may avoid needing a banking license if a regulated Swiss bank provides a default guarantee. However, banks face:

• Reputational risks if they guarantee stablecoins that are freely transferable.
• Regulatory scrutiny under the Banking Ordinance (Art. 5 para. 3 let. f)

Swiss “Gold-Plating”

FINMA’s approach is stricter than international norms. For example:

• No other major jurisdiction (EU, US, Singapore, etc.) requires identification of all intermediate holders or imposes transfer restrictions.
• FINMA interprets the relationship between issuer and intermediate holder as a “permanent business relationship”, which is controversial from a legal standpoint

References

• https://www.finma.ch/en/~/media/finma/dokumente/dokumentencenter/myfinma/4dokumentation/finma-aufsichtsmitteilungen/20240726-finma-aufsichtsmitteilung-06-2024.pdf?sc_lang=en&hash=03D675C1247EAFAE0C391363A2F18B9A
• https://shorturl.at/bTU1r
• www.finma.ch/en/news/2024/07/20240726-m-am-06-24-stablecoins/
• www.lexology.com https://www.lexology.com/library/detail.aspx?g=a69530c7-fefc-445e-8655-a933501573d6
• lawside.ch https://lawside.ch/finma-publishes-guidance-06-2024-on-stablecoins/
• www.homburger.ch https://www.homburger.ch/en/insights/finma-publishes-guidance-on-stablecoins
• www.bdo.ch https://www.bdo.ch/en-gb/insights/finma-guidance-06-2024-stablecoins-in-the-spotlight