3 Key Takeaways From Switzerland’s New Stablecoin Guidelines

In a news release published on Sept. 11, FINMA takes note of the steadily proliferating issuance of stablecoins since mid-2018, as well as confirming that the Geneva-based Libra Association had sought an assessment by FINMA for its Facebook’s stablecoin project under Swiss law.

Switzerland’s Financial Market Supervisory Authority (FINMA) has published a stablecoin-focused supplement to its existing guidelines for initial coin offerings (ICOs).

“Same risks, same rules”

FINMA’s introductory remarks outline that the watchdog treats stablecoins as it does other blockchain-based tokens, with a focus “on the economic function and the purpose of a token” and with a “same risks, same rules” approach that aims to be technology-neutral and principle-based.

Regulatory requirements for stablecoins there differ according to which asset(s) back the token – e.g. currencies, commodities, real estate or securities – and what the legal rights of its holders are.

Relevant requirements can therefore potentially extend across money laundering, securities trading, banking, fund management and financial infrastructure regulation.

FINMA confirms the Libra Association has sought an assessment

Facebook’s proposed Libra project in its current form, FINMA notes, would require a payment system license on the basis of Switzerland’s Financial Market Infrastructure Act (FMIA).

Swiss payment systems regulation adheres to prevailing international standards – notably the Principles for Financial Market Infrastructures (PFMI) – and includes provisions for cyber risk management and anti-money-laundering measures.

The regulator notes that any additional services that may increase the risks of a given payment system – such as bank-like risks – would be addressed by the imposition of additional regulatory requirements in line with FINMA’s “‘same risks, same rules” maxim.

Three key takeaways from FINMA’s approach to Libra

“Due to the issuance of Libra payment tokens, the services planned by the Libra project would clearly go beyond those of a pure payment system and therefore be subject to such additional requirements.”

Such additional requirements would apply to the Libra Association’s proposed capital allocation for credit, market and operational risks, its risk concentration, liquidity and management of the Libra Reserve.

FINMA notes that the Swiss payments system license has the advantage of allowing for a combination of banking and infrastructure regulatory provisions.

The watchdog further underscores that a necessary condition for the Libra network 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 ‘stable coin’ holders.”

A last important point from FINMA is that the international scope of Libra requires an internationally coordinated approach in order to establish the requirements for its reserve management, governance and AML system.
Cointelegraph reported earlier today on the context of the LIbra Association’s appeal to FINMA for an assessment of the proposed stablecoin network.

Alyze Sam: Stablecoins Are the “Gateway to Decentralization”

Speaking to attendees at Virtual Blockchain Week from her home in Kansas, Alyze Sam, co-author of a major guide to stablecoins, suggested stablecoins could be the key for big companies like Facebook and JP Morgan accepting decentralized assets as payment.

Her midwestern charm matched her deep knowledge of stablecoins, and Sam sees these digital assets as having a place in the crypto world for the long haul.

“They don’t have that decentralization. They don’t fill that freedom that we all want to experience. But stablecoins offer the benefits of a cryptocurrency, including cryptographic security and the ability to transfer assets digitally with speedy transactions.”

Though some stablecoins like Tether are mired in controversy (Tether was at one point backed only 74% by fiat currency), Sam says that as larger companies adopt stablecoins, acceptance will eventually proliferate. She said it would be a means to “teach them what exists within a decentralized economy.”

Banking institutions like JPMorgan Chase, the largest in the U.S., are issuing their own stablecoin, JPM Coin. The Libra Project, being released by Facebook, is also considering backing their token with a basket of stablecoins.

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