Swiss regulation poses the biggest threat to stablecoins such as USDT: issuers need to have a license and have to pay interest

This site (120Btc.coM): On July 26, 2024, the Swiss Financial Market Supervisory Authority (FINMA) issued a guidance document to elaborate on the regulatory environment for stablecoins. With the stablecoin project in Switzerland FINMA has also further restricted the local activities of these companies.

Swiss Regulation: Stablecoins may be deposits or crowdfunding schemes

FINMA states that stablecoins are designed to provide low price volatility and are typically backed by assets such as fiat currencies.

Stablecoin holders usually have payment claims against the issuer, and these claims may be classified as "deposits" or "collective investment schemes" under banking law. The classification depends on whether the asset is managed for the benefit of stablecoin holders (indicating collective investment schemes) or issuers (indicating bank deposits). Due to their use as payment mechanisms, stablecoins often fall under the regulatory umbrella of the Anti-Money Laundering Authority (AMLA).

Stablecoins have money laundering risks, and issuers are obliged to KYC holders

The Financial Action Task Force (FATF) has pointed out that stablecoins, like other cryptocurrencies, pose significant money laundering and terrorism financing risks. These risks include anonymous transfers, global reach and use in the layered stages of money laundering. The stability and store-of-value capabilities of stablecoins increase their appeal for illegal activities, including circumventing sanctions.

Stablecoin issuers are considered financial intermediaries under AMLA and must verify the identity of holders and beneficial owners. If in doubt, you must re-verify. FINMA highlighted the reputational risks to the Swiss financial center from stablecoin-related money laundering and terrorist financing.

Stablecoin issuers must have a license, or be guaranteed by a bank

Internationally, it is expected that stablecoin issuers will be subject to national supervision, which is consistent with the recommendations of the Financial Stability Board (FSB). In Switzerland, accepting deposits from the public generally requires a banking license, unless exceptions apply. Specifically, stablecoins backed by default guarantees provided by banks do not require a banking license if the guarantee meets certain conditions.

Requirements for default guarantees

FINMA has set minimum requirements for default guarantees related to stablecoins:

• Individual rights of claim: Each customer must have an individual right of claim against the Swiss bank that provided the guarantee in the event of the insolvency of the issuer. .

• Comprehensive Coverage: The guarantee must cover all public deposits, including interest.

• Maintain upper limit: The total deposit amount shall not exceed the guaranteed upper limit.

• Convenient Claims: Customers must be able to easily and quickly claim for their guarantee.

• Legal Defense: Allows the bank to raise legal defenses.

These requirements enhance depositor protection, but are not equivalent to the protection under a bank license. Stablecoin holders are not covered by the deposit protection provisions of the Banking Act.

Reputational Risk for Banks

Banks that provide default guarantees face reputational and legal risks, especially when stablecoin issuers fail to meet AMLA obligations. Irregularities at the issuer level can harm a bank's reputation through contractual relationships. Dishonest stablecoin holders may take advantage of tacit guarantees, increasing regulatory costs and legal risks for banks.

Federal Council Report: Acknowledging the need for action

The Federal Council report on changes to banking law highlights the need to reassess exceptions such as default guarantees to ensure adequate protection. FINMA aims to address these risks in future regulatory discussions and ensure that default guarantees are appropriately managed within the regulatory framework.

It will be difficult for stablecoin issuers to survive in the EU market

The current consensus on the regulatory framework for stablecoins in the EU, the UK and other countries may not be optimistic for stablecoin issuers. Must have a local compliance license and require fiat currency reserves to be local. For USDT, which keeps its capital reserves secret and prefers to be "anti-landing", but actively cooperates with the requirements to fight crime, it may not be easy to meet the requirements of these legal areas.

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