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A Swiss blockchain association has criticised the country’s financial regulator for issuing new stablecoin rules with "no recognisable legal basis" and without consulting firms that will be affected.
In a statement published last week, the Swiss Blockchain Federation voiced its opposition to new stablecoin guidance issued by the Swiss Financial Market Supervisory Authority (FINMA).
The guidance introduces strict know your customer (KYC) rules for Swiss stablecoin issuers — rules that the federation says go too far.
Under the new FINMA regulations, issuers are obliged to register all stablecoin holders as “clients” and are obliged to monitor their transactions.
The federation argues that these rules will subject Swiss stablecoin issuers to an “impossible” compliance burden that would render their product “unviable” in the Swiss market.
“The comprehensive identification of all users demanded by FINMA has no recognisable legal basis,” the federation said. “FINMA’s requirements make it impossible for Swiss issuers to issue competitive stablecoins.”
At present, as noted by the federation, the established legal practice is for stablecoin issuers to check the identity of their counterparties only at the time of issuance and redemption.
Even in jurisdictions where stablecoins are now under specific regulation, such as the EU, Japan and Singapore, KYC rules only apply at the time of issuance and redemption.
By contrast, under the FINMA rules, all stablecoin holders are said to be in a “permanent business relationship” with the issuer, and are therefore seen as “clients” under the Anti-Money Laundering Act.
“This means that all persons in possession of stablecoins must be identified by the issuing institution or appropriately supervised financial intermediaries by means of a verified passport copy or other official documents,” said the federation.
“In our opinion, such a requirement cannot be derived from the current Anti-Money Laundering Act.”
The federation also notes that the Financial Action Task Force (FATF) does not require or recommend that KYC be applied to intermediate holders of stablecoins, or that transferability be restricted for these users.
“There are good reasons for this,” it said. “Stablecoins which can only be transferred between clients of a single institution are unsuitable as a means of payment and therefore useless.”
EU, Swiss rules in conflict
The federation also argues that FINMA’s rules make no sense in the context of the EU’s Markets in Crypto-Assets (MiCA) regulation, whose stablecoin provisions came into effect in June this year.
Under MiCA, a stablecoin issuer that is licensed in one EU member state can offer their stablecoin in any jurisdiction in the European Economic Area (EEA), including in Switzerland.
As long as the stablecoin issuer has no physical presence in Switzerland, it would be able to bypass the FINMA rules and take advantage of the less restrictive rules offered by MiCA.
In effect, the mismatch in rules has the potential to drive Swiss stablecoin issuers out of the country, incentivising them to establish operations abroad instead.
Lack of industry engagement alleged
Finally, the federation is “concerned” by FINMA’s publication of the rules without any consultation with the firms that will be affected by them.
It said it has been advocating for constructive dialogue with regulator agencies “for years”, but continues to be disappointed by the lack of engagement.
Such engagement is necessary to ensure the long-term stability of Switzerland as a financial centre and as a competitive location for blockchain businesses, it said.
Vixio contacted FINMA for a response to the federation’s statement, but did not receive a reply by the time of publication.
