On 26 July 2024, the Swiss Financial Market Supervisory Authority (“FINMA”) released its new guidance on stablecoins (“FINMA Guidance 06/2024”).
FINMA’s Guidance 06/2024 on stablecoins introduces significant regulatory updates for stablecoin issuers and financial institutions in Switzerland, building on previous guidance from 2019. The key points include:
- Stablecoin Classification: Stablecoins are digital assets engineered to maintain a stable value by being tied to traditional currencies, commodities, or financial instruments. The issuer’s goal is usually to provide a means of payment that combines the advantages of cryptocurrencies – such as fast transactions and decentralized management – while reducing price volatility. Stablecoin holders typically have a payment claim linked to the underlying asset(s) against the issuer at any time. Therefore, FINMA generally treats stablecoins as deposits under banking law or as collective investment schemes, depending on their structure. The key factor in distinguishing between a deposit under banking law and a collective investment scheme is whether the underlying assets are managed for the account and risk of the issuer (suggesting a deposit under banking law) or for the account and risk of the stablecoin holder (suggesting a collective investment scheme).
In the first case, issuers of such stablecoins generally require a banking licence under Art. 1a of the Swiss Banking Act (“BankA”) or, with certain restrictions, a FinTech licence under Art. 1b BankA, unless the stablecoins are excluded from the definition of deposits under Art. 5 para. 2 et seq. of the Swiss Banking Ordinance (“BankO”). In practice, issuers very often invoke the exemption for deposits that are guaranteed by a Swiss bank with a default guarantee in accordance with Art. 5 para. 3 lit. f of the BankO (see section 2 below). If this exemption applies, stablecoin issuers are only subject to the Swiss Anti-Money Laundering Act (“AMLA”) and must join a self-regulatory organisation (“SRO”) as financial intermediary under the AMLA instead of obtaining a licence from FINMA (see section 3 below).
In the second case, the stablecoins are subject to the requirements of the Collective Investment Schemes Act (“CISA”). In addition, the issuers are also subject to the Swiss anti-money laundering regulations (see section 3 below).
- Default Guarantees of Swiss Banks: The requirements for a default guarantee, set by FINMA to protect depositors, particularly in the context of stablecoins, include the following:
- Individual Claims: Each customer must have a separate claim against the Swiss bank providing the default guarantee, and must be informed about it.
- Coverage: The default guarantee must cover at least the total amount of all deposits, including any interest.
- Limit Compliance: The total amount of deposits accepted may not exceed the upper limit of the default guarantee.
- Ease of Access: Depositors must be able to exercise the guarantee quickly and easily in case of need, and should not be prevented from doing so by any formal or material requirements under the default guarantee.
- Legal Defences: The bank providing the default guarantee can use legal defences to the extent provided for by law.
In addition, there is flexibility in choosing the legal basis for the guarantee, with no specific form required. The claim must be due at the time of the stablecoin issuer’s insolvency, ensuring quick access for customers. If multiple guarantees are involved, coordination issues and operational risks must be managed to avoid unauthorized activities.
- AML Requirements: The guidance mandates that all stablecoin holders must be identified by the issuer which is considered a financial intermediary for the purposes of anti-money laundering legislation. The verification of identity requirement does not just apply to the initial purchaser or redeemer, but also to all intermediate holders. In order to enforce this, transfers to individuals not on a “whitelist” must be restricted through contractual or technical means.
Please do not hesitate to contact us or book an appointment if you have any questions about the impact of FINMA’s Guidance 06/2024 on your current or future project.
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