FINMA published a supplement to its initial coin offerings (ICOs) guidelines, outlining the treatment for stablecoins under the Swiss supervisory law. The treatment of stablecoins under supervisory law follows the existing approach taken to blockchain-based tokens: the focus is on the economic function and the purpose of a token (substance over form). The requirements under supervisory law may differ depending on which assets back the stablecoin and on the legal rights of its holders. FINMA confirmed that it has received a request from the Geneva-based Libra Association for an assessment of how the supervisory authority would classify the planned Libra project, including the issuance of a stablecoin under the Swiss supervisory law. Hence, FINMA is providing an initial indication of how it would apply the relevant Swiss regulation.
FINMA provides an indicative classification of the project under Swiss supervisory law on the basis of the information available so far:
- In Switzerland, such a project would fall under the financial market infrastructure regulation. The project, as it is presently envisaged, would require a payment system license from FINMA, on the basis of the Financial Market Infrastructure Act (FMIA).
- Regulatory requirements for payment systems in Switzerland are based on the prevailing international standards, particularly the Principles for Financial Market Infrastructures (PFMI). These requirements also apply to the management of cyber risks.
- A Swiss payment system is automatically subject to the Anti-Money Laundering Act. The highest international anti-money laundering standards would need to be ensured throughout the entire ecosystem of the project. Such an ecosystem must be immune against elevated money laundering risks.
- Under the FMIA, all additional services that increase the risks of a payment system must be subject to corresponding additional requirements. This means that all the potential risks of a Swiss payment system, including bank-like risks, can be addressed by imposing appropriate requirements in line with the maxim "same risks, same rules." Due to the issuance of Libra payment tokens, services planned by the Libra project would clearly go beyond those of a pure payment system and would, therefore, be subject to such additional requirements.
- These additional requirements would relate in particular to capital allocation (for credit, market, and operational risks), risk concentration, and liquidity as well as the management of the Libra reserve.
- The additional requirements would be based on recognized standards for similar activities in the financial markets and would need to reflect the dimension of the project. A Swiss payment system license would thereby permit a combination of the strengths of banking and infrastructure regulation.
A necessary condition for being granted a license as a payment system would be that the returns and risks associated with the management of the reserve were borne entirely by the Libra Association and not—as in the case of a fund provider—by the stablecoin holders.
Keywords: Europe, Switzerland, Banking, Securities, Libra, Stablecoins, Initial Coin Offerings, Cryptocurrency, PFMI, Fintech, FINMA
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