FINMA Publishes Guidance 06/2024 on Stablecoins
FINMA's publication of Guidance 06/2024 "Stablecoins: Risks and challenges for issuers of stablecoins and banks providing guarantees" (Guidance 06/2024) has caused quite a lot of confusion and raised questions. Here is our initial assessment.
Guidance 06/2024 consolidates FINMA's existing practice and builds on the Stablecoin Guidance of 11 September 2019 and brief explanations in FINMA's 2021 Annual Report. Consolidating this patchwork into a formal guidance is positive, but unfortunately Guidance 06/2024 raises more questions than it provides answers.
The most controversial part of Guidance 06/2024 is the requirement that all stablecoin holders must be identified by the issuer in accordance with applicable AML rules and regulations. This applies not only to the person who purchases the stablecoin from the issuer and a subsequent holder who redeems a stablecoin, but also to all intermediate holders. In order to enforce the identification of all stablecoin holders, FINMA requires that transfers to persons not on the whitelist be restricted by contractual and/or technical means.
The whitelisting obligations were already imposed by FINMA on banks issuing stablecoins (see FINMA Annual Report 2021, p. 19), but Guidance 06/2024 seems to go even further. Banks obligation to identify all stablecoin holders was justified by reputational risks bank would take by issuing freely transferable stablecoins and assuming the related AML/TF risks. FINMA now argues that the relationship between the issuer and each intermediate holder is a "permanent business relationship" ("dauernde Geschäftsbeziehung") as defined by Article 2(d) AMLO-FINMA. This is an interpretation that goes well beyond the ordinary meaning of the law since an intermediate holder by definition does not engage with the issuer in any way. It is therefore fair to assume that FINMA is skating on thin ice from a legal perspective.
From a policy perspective it must be emphasized that no other relevant jurisdiction requires full identification of all intermediate holders and transfer restrictions - not the European Union, Hong Kong, Japan, Singapore, or the United States. Nor does the Financial Action Task Force (FATF), the primary AML standard-setter, mandate such a requirement. This is Swiss gold-plating, pure and simple.
Guidance 06/2024 also reiterates that any stablecoin issuer is subject to banking regulation if redemption takes place at face value. Requiring a full-fledged banking license for the mere issuance of stablecoins is a complete overkill and economically unsustainable, but there is not much that can be done given the current state of the law.
However, stablecoin issuers without a banking license can rely on a guarantee provided by a bank, one of the exceptions to the definition of deposit (Article 5(3)(f) Banking Ordinance). Guidance 06/2024 clarifies in a very helpful manner the conditions that must be met in order for relying on this exception.
Interestingly, FINMA is highlighting very much the risks associated with business models for the guarantee banks and seems to be calling on the legislator to restrict the guarantee exemption. This would be inappropriate. The guarantee exception (as well as other exceptions from the definition of a deposit taking activity in Article 5 Banking Ordinance) is a necessary complement to the extremely expansive definition of bank deposits under Swiss law. This results in activities being subject to the Banking Act that have nothing to do with banking activities as traditionally understood.
It has long been recognized that the legal and regulatory framework for stablecoins in Switzerland is inadequate. It is understood that the Swiss State Secretariat for International Finance (SIF) is preparing amendments as part of the review of the fintech license (Article 1b Banking Act). The authorities should accelerate their work and submit proposals for a Swiss stablecoin regulation as soon as possible. In the course of the legislative process, parliament will also have the opportunity to assess the positions set out in the Guidance 06/2024.
For the time being it must unfortunately be concluded that the legal and regulatory framework in Switzerland makes it de facto impossible to issue a stablecoin in a manner that makes sense from an economic and business perspective. Potential stablecoin issuers would be well advised to start their business in another, more friendly jurisdiction. The European Union, for example, imposes a very strict regulatory regime in the Markets for Crypto-Assets Regultions (MiCA), but issuers benefit from regulatory clarity and from passporting rights in a market with about 250 million customers. And an EU issuer can offer its stablecoin without any restrictions to Swiss customers, including Swiss retail customers, provided the issuer has no substantial presence in Switzerland.
The complete documents can be found here.
Please contact us if you would like to discuss the impact of Guidance 06/24 on your business.
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