On September 11, 2019, the Swiss financial market supervision authority FINMA published an addendum to the ICO manual, which outlined its position on stablecoin1 under the Swiss supervision legislation. Observing the steady growth of stablecoin projects since 2018, in the context of a request from the Libra Association, FINMA in the initial directions provides information on how the Swiss supervisory will apply the relevant rules for the assessment and supervision of stablecoins.
According to FINMA, the supervisor considers stablecoin in accordance with the law on supervision of an existing approach to blockchain-based tokens: the main focus is on the economic nature and purpose of the token (“substance over form”). When making decisions on specific projects, FINMA will “follow the proven principle of“ same risks, same rules ”, and also take into account the features of each project.
The requirements under the supervision law may vary depending on which assets (e.g. currencies, goods, real estate or securities) are supported by stablecoin and how the legal rights of its owners will be protected (see the Overview in the Appendix to the Guidelines ICO, Appendix 2).
FINMA provided the legal assessment and indicative classification of the Libra project in accordance with Swiss supervisory law based on the available information. It is worth noting that FINMA focused on the fact that the classification may change during the implementation of the project.
Here are a few key points:
- The project falls under the regulation of Swiss financial market infrastructure. The project, as it is currently envisioned, will require a FINMA payment system license.
- The regulatory requirements for payment systems in Switzerland are based on prevailing international standards, in particular, on the Principles for Financial Market Infrastructures (PFMI). These requirements also apply to cyber risk management.
- The Swiss payment system is automatically covered by the Anti-Money Laundering Act. The highest international anti-money laundering standards must be ensured throughout the project’s ecosystem. Such an ecosystem must be protected from the increased risks of money laundering.
- According to the Financial Market Infrastructure Act (FMIA), all additional services that increase the risks of the payment system must comply with the relevant additional requirements. This means that all potential risks of the Swiss payment system, including banking risks, can be eliminated by introducing the relevant requirements in accordance with the principle of “same risks, same rules”. In connection with the release of Libra payment tokens, the services planned by the Libra project will clearly go beyond a purely payment system and, therefore, will be the subject of such additional requirements.
- These additional requirements will relate in particular to the distribution of capital (for credit, market and operational risks), concentration of risk and liquidity, as well as the management of the Libra reserve.
- Additional requirements will be based on generally accepted standards for similar activities in financial markets and should reflect the scope of the project. For example, for similar banking risks, banking regulatory requirements will apply. Thus, the license of the Swiss payment system will allow you to combine the strengths of banking and infrastructure regulation.
A prerequisite for obtaining a license as a payment system would be that the revenues and risks associated with the management of the reserve are fully covered by the Libra Association, and not by the providers of funds - stablecoin holders.
The planned international scope of the project requires an internationally coordinated approach. In particular, the definition of requirements for reserve management and management, as well as for combating money laundering, should be developed in the framework of international coordination.
Matters beyond supervisory law.
A possible licensing procedure under Swiss supervision legislation will only begin after FINMA receives a specific licensing application. In accordance with its practice, FINMA will not provide public information on the status of any existing licensing procedures and will not speculate on when it may be completed.
Other issues raised in the context of the Libra project, such as those related to tax law, competition law or data protection law, are outside the scope of supervisory law and therefore are not within the competence of FINMA.
In the next message, we will analyze in detail the documents posted below.
Source: FINMA.