Swiss regulator FINMA introduces new guidelines for stablecoins

In a bid to strengthen regulatory oversight in Switzerland and mitigate financial risks, the country’s financial market regulator (FINMA) has proposed new guidelines for stablecoin issuers.

The proposal comes amid growing concerns about the potential impact of stablecoins on regulated institutions and the broader financial ecosystem.

Classifying stablecoins as financial intermediaries

In a recent directive, FINMA seeks to classify stablecoin issuers as financial intermediaries, highlighting the heightened risks associated with money laundering, terrorist financing and sanctions evasion associated with these digital assets.

Stablecoins, digital assets pegged to traditional currencies or other assets to maintain a stable value, have seen increased adoption. However, the rapid growth of these stablecoins has also raised regulatory concerns around the world due to potential abuse for illicit activities.

Stablecoins should be subject to AML

In its guidelines, FINMA emphasized that stablecoin issuers must comply with the same anti-money laundering (AML) obligations as traditional financial institutions. This means verifying the identity of stablecoin holders and establishing the identity of beneficial owners.

“The stablecoin issuer is therefore 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 a customer in accordance with the applicable obligations (Art. 3 AMLA) and establish the identity of the beneficiary (Art. 4 AMLA),” FINMA said.

In addition, FINMA explained how stablecoin issuers can operate without a banking license, provided they meet certain conditions. These conditions are intended to ensure that depositors are protected and that issuers have a bank guarantee in case of default.

The framework sets minimum requirements for default guarantees

According to FINMA, the framework sets minimum requirements for default guarantees, requiring issuers to inform customers, stay within guarantee limits and allow immediate claims in the event of insolvency, without waiting for a certificate of loss.

While FINMA’s measures should improve depositor protection, they do not, at least for now, offer the same certainty as a banking license. Nevertheless, the regulator is determined to limit the risk of default. The regulator also wants to ensure that stablecoin issuers meet strict(er) standards to better protect their customers.

The stablecoin sector, consisting of cryptocurrencies pegged to traditional currencies like Tether and USDC, has seen exponential growth in recent years, reaching an unprecedented market cap in 2023. In response, global regulators are rushing to establish guidelines for this rapidly evolving sector.

According to the PwC Global Crypto Regulation Report 2023, at least 25 countries, including Switzerland, had implemented stablecoin regulations or legislation by the end of the year.