FINMA specifies practice on stablecoins

Classification of the innovations¹

Treatment under banking law and requirements for default guarantees

The issue of funds whose repayment and interest are guaranteed by a bank is not subject to authorisation under banking law. This exemption provision in the Banking Ordinance is utilised by various stablecoin issuers.

Stablecoin holders therefore also do not benefit from deposit protection under banking law. In order to increase depositor protection when issuing stablecoins, FINMA has defined minimum requirements for default guarantees, which are to be applied in a technology-neutral manner:

1. In the event of the bankruptcy of the stablecoin issuer, each customer must have their own claim against the Swiss bank issuing the default guarantee. Customers must be informed of the default guarantee;
2. The default guarantee must cover at least the sum of all public deposits including any interest earned by customers;
3. In accordance with the scope of cover, it must be ensured that the total deposits covered by the cover requirement never exceed the upper limit of the default guarantee;
4. The formal and material provisions of the default guarantee must not prevent the depositor from making an uncomplicated, rapid call on the default guarantee;
5. Defences and objections by the bank to the extent provided for by law are permissible.

FINMA also draws the attention of the guaranteeing banks to their legal and reputational risks, which may arise from breaches of duty by stablecoin issuers, particularly in the area of money laundering.

Combating money laundering

In the area of combating money laundering and terrorist financing, FINMA points out that stablecoins share many of the potential risks of cryptocurrencies. In particular, stablecoins can be transferred anonymously via self-managed wallets, have a global reach and are suitable for the layering phase of the money laundering process. Stablecoins are also attractive for circumventing sanctions.

The usual purpose of stablecoins as a means of payment almost always leads to the stablecoin issuer being subject to AMLA and thus at least to an SRO affiliation obligation.

As the liability of the stablecoin issuer to the respective stablecoin holder is of a deposit nature, FINMA also assumes a permanent business relationship within the meaning of the Anti-Money Laundering Act. As a result, even the temporary holding of a stablecoin is classified as a permanent business relationship and the stablecoin issuers must therefore identify all stablecoin holders as contracting parties, determine the beneficial owner and monitor the transactions. This "tightening" of obligations has been criticised in the crypto sector and, in particular, by stablecoin issuers. In contrast, FINMA does not see any major changes to the existing obligations in the communicated requirements in the area of combating money laundering and refers to the principle of technology-neutral regulation. 

Conclusion and outlook 

By defining specific minimum requirements for default guarantees, the supervisory authority is increasing depositor protection and will continue to advocate the appropriate addressing of the risks associated with default guarantees in the upcoming discussions as part of the revision of the Banking Act. Guarantee-issuing banks should take appropriate account of the legal and reputational risks arising from possible irregularities at the stablecoin issuer in their risk management. 

Stablecoin issuers should be aware of the increased risks regarding money laundering, terrorist financing and sanction circumvention and, as financial intermediaries, ensure compliance with due diligence obligations under anti-money laundering legislation. It remains to be seen what impact the FINMA Guidance will have on existing stablecoin projects and innovation in this area. 

_{[1] This is a highly simplified presentation intended to enable a quick initial categorisation of the topic. Each institution should determine the relevance and the specific need for action individually and specifically.
[2] Direct applicability and high relevance only for stablecoin-issuing financial intermediaries.}