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FINMA provides guidelines on "stablecoin"

Sep 19, 2019

The number of ‘stablecoin’ projects has increased markedly since the last year. The idea behind the ‘stablecoin’ projects is to minimize the volatility in cryptocurrency’s valuation by fixing the ‘stablecoin’ to currencies, commodities, securities or, real estate. In this connection, the Swiss Financial Market Supervisory Authority (FINMA) has provided the guidelines bringing to light how ‘stablecoins’ are being handled under the relevant Swiss regulation.

The Swiss Authority’s handling of ‘stablecoins’ is based on the current approach to blockchain tokens. FINMA’s treatment of this cryptocurrency under supervisory law mainly comprises focusing on the purpose and economic role of the token. But the nature of the ‘stablecoin’ can diverge depending on the legal rights of the cryptocurrency’s holder and assets to which the ‘stablecoin’ is pegged.

Here below are the guidelines determined by FINMA:

In Switzerland, a ‘stablecoin’ project would come within the financial market infrastructure regulation and, drawing upon the Financial Market Infrastructure Act (FMIA), would have to obtain the payment system license issued by FINMA.

It is noteworthy that opportunities and risks from the management of the underlying assets must be borne by the project issuing ‘stablecoins’, and not the holder of the ‘stable coin’. Without meeting such condition, the payment system license would not be granted to the applicant.

Payment systems in Switzerland adhere to international standards prescribed in the Principles for Financial Market Infrastructures (PFMI) and, beyond that, PFMI also cover cyber risks management.

As any other Swiss payment system, ‘stablecoin’ project must ensure full conformity with international Anti-Money Laundering (AML) standards. For the purposes of prevention of financial crime and money laundering every payment system is subject to the Anti-Money Laundering Act as a matter of course.

FINMA suggests the golden rule of ‘same risks, same rules’ which implies that each and every specific feature and additional service provided by the project should be complemented by additional requirements. Given that additional services involve additional risks, additional requirement rule is embedded in the FMIA.

As there are recognized standards in every separate financial domain, additional requirements would be based on the relevant standards and cover those relevant risks. For instance, risks in the banking domain will be covered with the bank-like regulatory requirements.

In Switzerland, high international standards are greatly appreciated. Thus, any ‘stablecoin’ project that is seeking international outputs, will have to implement an international approach, especially in managing the underlying assets, the governance around the reserves, and AML.

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