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The Swiss Financial Market Supervisory Authority (FINMA) has released new guidance on the issuance of stablecoins, with professionals in the crypto space divided on how impactful the regulation will be.
In its guidance, FINMA reiterated the importance of adhering to financial market laws, particularly in the areas of banking and collective investment schemes.
This comes as the popularity of stablecoins has surged in Switzerland, with several projects seeking to offer a stable and reliable means of payment through blockchain technology.
The regulatory body clarified that stablecoin projects often involve claims categorised as deposits under banking law or collective investment schemes, depending on whether the underlying assets are managed for the benefit of the issuer or the stablecoin holders.
A significant portion of the guidance focuses on the risks associated with stablecoins, particularly in relation to money laundering and terrorist financing.
FINMA emphasised that stablecoins, due to their potential for anonymous transactions and global reach, pose a heightened risk for illicit activities.
The regulator stressed the need for compliance with the Anti-Money Laundering Act (AMLA) and highlighted the importance of verifying the identities of all stablecoin holders.
A secure jurisdiction
According to Simon Giselbrecht, founding member and advisor to SwissAssetDAO, FINMA's regulations are “essential for maintaining the integrity not just of the financial system, but rather make it clearer that stablecoins should and must be backed by robust guarantees and adhere to stringent AML standards”.
Giselbrecht added that he supports the cautious approach.
“While potentially limiting short-term innovation, this is crucial for long-term trust and stability in the market and the much sought after trust and transparency.”
The Zurich-based advisor suggested that the market will evolve “as we have seen a variety of times with smart contracts, DeFi, and non-fungible tokens”, suggesting that the regulations will only contribute to a more resilient market in the long run.
“From 2019 to 2024, Switzerland has progressively refined its stablecoin regulations, aiming to protect the financial system while fostering innovation,” he said. “FINMA's latest guidelines exemplify this balance, ensuring that Switzerland remains a leading, secure jurisdiction in the evolving digital finance landscape.”
No new stablecoins from Switzerland?
However, the new rules have sparked some concerns among stakeholders.
For example, the identity of all persons holding the stablecoins must be adequately verified by the issuing institution or by appropriately supervised financial intermediaries, rather than just at redemption.
According to Lucas Betschart, CEO at 21 Analytics, this, in practice, "means no more new stablecoins from Switzerland".
"However, from what I understand, existing projects with Non-Action Letters might not be directly affected," he said. "Let's see how their banking partners react. I imagine many stablecoin projects will have issues with their Swiss banks after this."
Betschart, who is based in the crypto hub of Zug, said that one could interpret this and previous actions as FINMA "only wanting existing, established players offering Bitcoin to their customers; and everything else is delivered to the Swiss by foreign companies who don't fall under FINMA regulation".
"I don't see how there is any consumer protection in this," he added.
Giselbrecht was more optimistic: “Possibly there may be a temporary pause as issuers adapt to the new regulations, but compliant stablecoins that will support my thesis of the future digital economy will continue to emerge, potentially stronger and more secure with new innovative functionalities,” he said.
Key risks to consumers
FINMA has noted that some stablecoin issuers in Switzerland utilise default guarantees from banks, which can exempt them from requiring a banking licence.
However, the regulator believes this practice introduces several risks, including potential reputational damage to banks and legal challenges, particularly if stablecoin holders make claims against these guarantees in the event of the issuer's insolvency.
FINMA has set forth minimum requirements for such default guarantees, ensuring a baseline level of protection for depositors, although it cautions that these measures do not equate to the comprehensive protections afforded under banking law.
In light of these findings, FINMA has called for a review of existing regulations to ensure adequate protection for all stakeholders.
A structured regulatory environment
Vyara Savova, senior policy lead at the European Crypto Initiative, told Vixio that although the rules set by FINMA may impose significant compliance requirements and potential liabilities for stablecoin issuers and holders in Switzerland, they also clarify and provide a structured regulatory environment for these types of activities.
“In particular, the FINMA Guidance provides for a more precise classification of stablecoins under Swiss law as both deposits under banking law or collective investment schemes, leading to more requirements, including, in certain instances, a banking licence, as well as more stringent compliance obligations,” she said.
Savova added that the AML requirements include identity verification and transaction monitoring, which would undoubtedly increase the operational costs for the issuance of stablecoin, as well as add further complexity to this activity.
“Furthermore, the general distinction between deposits and collective investment schemes would require firms to carefully structure their products to align with regulatory expectations, which would increase their legal expenses and would potentially limit specific business models,” she warned.
The Bulgaria-based lawyer continued that even if the issuance is covered by a default guarantee from a bank, “one can expect that the particular banks offering default guarantees may face heightened regulatory and compliance scrutiny and even risk of reputational damage”.
How does this compare with MiCA?
With Switzerland surrounded by EU member states (Austria, France, Germany and Italy) and a European Economic Area member (Liechtenstein), it is relevant to compare Switzerland's regulatory approach with the EU's Markets in Crypto Assets (MiCA) regulation, which recently became enforceable for stablecoins.
Switzerland has often been viewed as more pro-crypto than the EU. This is due to the canton of Zug — which has become affectionately known as "Crypto valley" — as well as the central bank’s decision to so-far shun the idea of a retail central bank digital currency (CBDC).
This seems positive in comparison to the EU, where parliamentarians and regulators alike have been quick to criticise crypto, especially stablecoins.
Indeed, a few years ago, a senior official at the European Central Bank, Fabio Panetta, who now serves as governor of the Bank of Italy, said that crypto should be treated as a form of gambling.
Savova told Vixio that under the latest FINMA guidance, stablecoins in Switzerland are generally considered deposits under banking law or collective investment schemes, depending on whether the underlying assets are managed for stablecoin holders or issuers.
"This categorisation marks a significant difference in approach when compared to the EU," she said.
The newly adopted MiCA regulation, in contrast, creates a comprehensive regime for asset-referenced tokens and e-money tokens, focusing on claims against issuers, backed by sufficient reserves and authorisation requirements.
"While it may be too early to determine which regime will be more burdensome for issuers or beneficial for asset holders, the EU and Swiss approaches share a key similarity," she continued.
According to FINMA, stablecoin issuers must verify the identity of holders and establish the identity of the beneficial owner.
The European Banking Authority (EBA) has also implemented standards under MiCA that require asset-reference token issuers and non-EU official currency e-money token issuers to collect detailed information about holders.
This includes full name and identification numbers and is used to enhance supervision and understand the precise number of holders within the EU.
Speaking about whether this regulation will change Switzerland’s reputation, Giselbrecht said that the new guidance “reinforces Switzerland's reputation as a secure and well-regulated hub for digital assets”.
“By implementing a clear view using stringent guidelines, I do see and believe that the Swiss market is still one of the most attractive,” he said, adding that the country remains the right place for a variety of serious companies and players that value a stable and trustworthy regulatory environment.
