Swiss regulator FINMA targets stablecoin issuers in new proposal

In a move aimed at bolstering regulatory oversight and mitigating financial risks, the Swiss Financial Market Supervisory Authority (FINMA) has proposed new guidelines for stablecoin issuers. The proposal comes amid growing concerns over the potential impact of stablecoins on regulated institutions and the broader financial ecosystem. 

According to a recent guidance document, FINMA seeks to classify stablecoin issuers as financial intermediaries, highlighting the increased risks associated with money laundering, terror funding, and sanctions evasion linked to these digital assets.

Stablecoins, which are digital assets pegged to traditional currencies or other assets to maintain stable value, have seen a surge in adoption. However, their rapid growth has also raised red flags for regulators worldwide due to their potential misuse for illicit activities.

Addressing Financial and Reputational Risks

In FINMA’s guidance, issued on July 26, the regulator emphasized that stablecoin issuers must be subject to the same anti-money laundering (AML) obligations as traditional financial institutions. This includes 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),” FINMA stated.

Framework for Default Guarantees

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

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 case of insolvency, without waiting for a certificate of loss.

Enhancing Depositor Protection

While FINMA's measures boost depositor protection they do not match the security of a banking license. Still, the regulator is committed to mitigating default guarantee risks and ensuring stablecoin issuers meet robust standards to safeguard customers.

The stablecoin sector, comprising cryptocurrencies pegged to traditional currencies like Tether USDT and USDC USDC, has experienced exponential expansion in recent times, reaching unprecedented market capitalization in 2023. In response, global regulators are hastening 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 year's end.