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Manuylova Natalya

Manuylova Natalya

CCO | OS Club

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.

FATF public statement of February 22, 2019...

Democratic People's Republic of Korea (DPRK). The FATF reaffirms its 25 February 2011 call on its members and urges all jurisdictions to advise their financial institutions to give special attention to business relationships and transactions with the DPRK, including DPRK companies, financial institutions, and those acting on their behalf. In addition to enhanced scrutiny, the FATF further calls on its members and urges all jurisdictions to apply effective counter-measures, and targeted financial sanctions in accordance with applicable United Nations Security Council Resolutions, to protect their financial sectors from money laundering, financing of terrorism and WMD proliferation financing (ML/FT/PF) risks emanating from the DPRK. Jurisdictions should take necessary measures to close existing branches, subsidiaries and representative offices of DPRK banks within their territories and terminate correspondent relationships with DPRK banks, where required by relevant UNSC resolutions.

Iran. Country will remain on the FATF Public Statement until the full Action Plan has been completed. Until Iran implements the measures required to address the deficiencies identified with respect to countering terrorism-financing in the Action Plan, the FATF will remain concerned with the terrorist financing risk emanating from Iran and the threat this poses to the international financial system. The FATF, therefore, calls on its members and urges all jurisdictions to continue to advise their financial institutions to apply enhanced due diligence with respect to business relationships and transactions with natural and legal persons from Iran, consistent with FATF Recommendation 19, including: (1) obtaining information on the reasons for intended transactions; and (2) conducting enhanced monitoring of business relationships, by increasing the number and timing of controls applied, and selecting patterns of transactions that need further examination.

Sanctions against Iran prohibit the export to Iran of nuclear, missile and a significant part of military products, foreign direct investment in Iran’s oil and gas and petrochemical industries, export of refined petroleum products, as well as any contacts with the Islamic Revolutionary Guard Corps (IRGC), banks and insurance companies, financial transactions and cooperation with the Iranian navy.

Source: FATF-GAFI.ORG - Financial Action Task Force (FATF).

February 2019, while the crypto ecosystem continues to make considerable progress in building out its infrastructure and 'institutionalising' the space, many crypto players are facing challenges due to a broad range of issues, from a fall in cryptoasset prices to more regular start-up challenges.

This is forcing many crypto firms into situations of financial distress. In this article, they set out the ten things that any director or senior executive of a crypto entity needs to know when its solvency status is in doubt.

Download Crypto Insolvency...

Source: PwC HK - PricewaterhouseCoopers Hong Kong.

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