Thursday, 17 October, 2019
The Digital Regulator
Switzerland tackles stable coins
During the first part of the year, 2019 was expected to be the STO (Security Token Offering) year. However, It has turned out to be a stable coin year. The announcement of Libra has been the key event. It has brought crypto terminology to the main street and constituted a wake-up call for governments and regulators globally. It has shown that the crypto industry can become systemically relevant to the monetary and financial system. Libra has paved the way for a plethora of smaller-size projects, particularly in Switzerland – home to the most developed crypto finance ecosystem – and caused FINMA to announce its position on Libra by means of a guidance for such smaller-size projects. FINMA’s guidance states that a project that would need a payment system license incremented by prudential regulatory requirements as well as international regulatory coordination. With this move, Switzerland further cements its position as the most developed, yet rigorous and pragmatic, crypto finance hub It recognizes the need to address global and coordinated fashion the systemic risk aspect associated with large-scale stable coin initiatives – while the G7 handed off work on regulatory issues raised by global stable coins to the Financial Stability Board (FSB).
Stable coins: The Swiss approach in the international context
In an international environment where skepticism, statements of intention and high-level warnings dominate, Switzerland emerges as the first jurisdiction to increase regulatory certainty in a material way for stable coin projects, including Libra. This is an outcome of the combination between a leading crypto finance ecosystem, such as the Swiss one, and a pragmatic, innovation-friendly, regulator, such as FINMA - holding a clear view of what is systemically relevant and when.
Noted on the fly
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FINMA complemented its ICO guidelines with guidance on the assessment of stable coins projects. Consistent with past stances, it indicates that there is no need for new regulation to address stable coins. The risks are known and for each risk there is already a regulation. It proposed a classification of stable coins to assist the assessment of projects. FINMA indicated that under Swiss supervisory law, Libra needs a payment system license, likely to be incremented by prudential regulatory requirements in the areas of capital, risk and liquidity, as well as proper international regulatory coordination. At the macroeconomic level, the SNB highlights that stable coins pegged to foreign currencies could impair the effectiveness of domestic monetary policy, while the G7 handed off to the FSB the task to examine the regulatory issues raised by stable coins that have the potential to reach global scale. Noted on the fly:
1FINMA reminds that tax law, competition law or data protection law can all be of relevance too, but are outside FINMA’s remit. ↵
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