Swiss Blockchain Federation criticizes FINMA’s supervisory communication on stablecoins
The Swiss Blockchain Federation is concerned about the supervisory communication from the Swiss Financial Market Supervisory Authority FINMA on stablecoins. The comprehensive identification of all users demanded by FINMA has no recognizable legal basis. FINMA’s requirements make it impossible for Swiss issuers to issue competitive stablecoins. In addition, the announcement came as a surprise and without consulting those affected.
Bern, 13 August 2024 – On 26 July 2024, FINMA published the supervisory communication “Stablecoins: Risks and requirements for stablecoin issuers and guarantee-issuing banks” (06/2024), which has caused unrest and criticism in the blockchain industry, as FINMA is going far beyond previous practice, which has also been criticized by the industry.
In this supervisory communication, FINMA expresses the view that issuers of stablecoins are obliged to register all holders of stablecoins as clients and to monitor their transactions. Stablecoins are electronic means of payment. The established practice for means of payment is to check the counterparty only at the time of issue and redemption. In a departure from this practice and international custom, FINMA now construes the existence of a claim between the stablecoin holder and the stablecoin issuer as a “permanent business relationship” and therefore a client relationship 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.
In the opinion of the Swiss Blockchain Federation, such a requirement cannot be derived from the current Anti-Money Laundering Act. Classifying the temporary holding of a stablecoin as a “permanent business relationship” with the issuer goes far beyond what would be justifiable according to the meaning and purpose of the relevant regulations. In this respect, FINMA does not have a sufficient legal basis for its practice.
FINMA’s interpretation of the legal framework for money laundering goes significantly further than what is required by international standard setters and other countries. Neither the European Union nor Singapore, Hong Kong, Japan or the USA require the identification of all intermediate holders of a stablecoin or a restriction on its transferability. The Financial Action Task Force (FATF) – the most important international body for money laundering regulations – does not require this either. There are good reasons for this: Stablecoins, which can only be transferred between clients of a single institution, are unsuitable as a means of payment and therefore useless.
If this FINMA practice were to prevail, the issuance of stablecoins from Switzerland would effectively be made impossible because the restrictions communicated by FINMA would not allow for a viable business model. Swiss issuers of stablecoins are therefore forced to realize their project abroad. If they implement it in a member state of the European Union, they are subject to regulation tailored to this use case and can freely offer the stablecoin throughout the European Economic Area. In addition, they can also distribute the stablecoin in Switzerland without any restrictions, provided they do not have a permanent physical presence in Switzerland and, in particular, do not employ any staff.
Finally, the SER is disconcerted that FINMA has waived its statutory participation rights (Art. 7 para. 4 FINMASA) and that those directly affected have not been consulted. The SER has been advocating a constructive dialog with the authorities for years with the aim of ensuring the long-term stability of the financial centre and strengthening the pioneering role, competitiveness and future viability of Switzerland as a blockchain location.
What are stablecoins?
In order to exploit the potential of applications based on distributed ledger technology, digital means of payment are needed that enable transactions in an official currency such as the Swiss franc, the euro or the US dollar. Stablecoins are digital currencies that are backed by deposits or financial instruments in the corresponding official currency and therefore have a more or less stable value against the reference currency. In contrast to cryptocurrencies, which are unsuitable for transactions in official currencies due to their strong price fluctuations, stablecoins play a central role in decentralized finance and many other blockchain applications.