The Swiss Financial Market Supervisory Authority (FINMA) has
today (Friday) released new guidance regarding the issuance of stablecoins. This
document addresses default guarantees, associated risks, and FINMA’s approach
to regulating stablecoins. It also highlights increased risks related to money
laundering.
Stablecoin Risks Highlighted
In recent years, stablecoin projects have gained
significance in Switzerland. These projects aim to offer a low-volatility
payment method on blockchain technology. FINMA had previously addressed
stablecoin concerns in its supplement to the ICO guidelines issued in September
2019.
“As described in the supplement to the ICO guidelines,
projects in connection with stablecoins usually pursue the goal of providing a
means of payment with low price volatility on a blockchain,” FINMA stated.
The guidance outlines various aspects of financial market
law pertinent to stablecoin projects and their impact on regulated
institutions.
Swiss regulator FINMA has published guidance on stablecoin issuers, urging them to verify the identity of all persons holding digital tokens pegged to fiat currencies https://t.co/ET38nA1Eji
— crypto.news (@itscrypto_news) July 26, 2024
Stablecoin Guarantees Raise Concerns
FINMA emphasizes heightened risks in money laundering,
terrorist financing, and evasion of sanctions associated with stablecoin
projects. These risks also pose reputational challenges for the Swiss financial
sector.
“FINMA draws attention to the increased risks of money laundering,
terrorist financing and the circumvention of sanctions. These also result in
reputational risks for the Swiss financial centre as a whole,” the authority
added.
According to FINMA, the stablecoin issuer is classified as a
financial intermediary under anti-money laundering regulations. It must verify
the identity of stablecoin holders and establish the identity of the beneficial
owner according to regulatory requirements.
If doubts arise about the identity
of the customer or the beneficial owner during the business relationship, the
verification process must be repeated.
FINMA observes that some stablecoin issuers in Switzerland
use default guarantees from banks, potentially avoiding the need for a banking
license from FINMA. This arrangement introduces risks for both stablecoin
holders and the banks providing the guarantees.
The guidance includes FINMA’s
minimum requirements for default guarantees to safeguard depositors, applicable
to stablecoins as well.
Earlier, FINMA
reviewed money laundering risk analyses of over 30 Swiss banks this spring
and found many did not meet basic requirements, as reported by Finance
Magnates. The review followed repeated shortcomings identified during
on-site inspections.
Issues included inadequate definitions of risk tolerance and
missing structural elements essential for risk analysis. In response, FINMA released
new guidance to address these deficiencies and enhance transparency.
This article was written by Tareq Sikder at www.financemagnates.com.
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