FINMA Warns Stablecoins Threaten Swiss Financial Reputation
- The Financial Market Supervisory Authority (FINMA) says stablecoins are not only associated with money laundering risks but pose reputational risks for the entire Swiss financial centre.
The Swiss regulator, the Financial Market Supervisory Authority (FINMA), recently published guidance on the issuance of stablecoins.
The regulator says stablecoins are not only associated with money laundering risks but pose reputational risks for the entire Swiss financial centre.
Stablecoin Issuers as Financial Intermediaries
The Swiss regulator, the Financial Market Supervisory Authority (FINMA), has recently published guidance on stablecoins.
In this guidance, FINMA highlights the increased risks related to money laundering associated with these digital assets.
Additionally, the document addresses aspects of financial market law relevant to stablecoin projects and their potential impact on regulated institutions.
In a statement
issued on July 26, FINMA emphasizes that stablecoins not only raise the risk of terror funding and sanctions evasion but also pose reputational risks for the entire Swiss financial centre.
To mitigate these risks, the Swiss regulator said it recommends classifying stablecoin issuers as financial intermediaries.
“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 the customer in accordance with the applicable obligations (Art. 3 AMLA) and establish the identity of the beneficial owner (Art. 4 AMLA),” the regulator’s stablecoin guidance states.
Meanwhile, FINMA revealed that Swiss stablecoin issuers use default guarantees from banks to enable them to operate without a license under the country’s banking law.
The regulator insisted that a framework to protect depositors must be in place. According to FINMA, it has already developed this framework, which sets “minimum requirements for the applicability of the exception for default guarantees.”
FINMA Seeks to Address Risks Associated with Default Guarantees
As
explained in the guidance, customers or stablecoin holders must be informed of the default guarantee in the event of the stablecoin issuer going bankrupt.
Regarding the scope of cover, FINMA states that issuers must ensure that the total deposits covered by the requirement never exceed the upper limit of the default guarantee.
To enable customers to quickly call upon the default guarantee, FINMA emphasizes that the claim in question must be due at the time of insolvency—specifically when bankruptcy proceedings are opened against the stablecoin issuer—not only when a certificate of loss is issued.
While these steps enhance depositor protection, the Swiss regulator acknowledges that it does not match the level of protection afforded by a banking license. Nonetheless, FINMA said it remains committed to addressing the risks associated with default guarantees.
