Switzerland's financial markets supervisor, FINMA, has proposed new guidelines aimed at enhancing regulatory oversight for stablecoin issuers and mitigating associated financial risks.

The stablecoin sector has experienced significant growth, achieving a record market capitalization in 2023, which has prompted regulatory bodies to establish necessary guidelines.

Stablecoins are digital assets linked to traditional currencies or other assets to maintain value stability, yet their rapid expansion raises global regulatory concerns.

FINMA's proposal addresses the potential impact of stablecoins on regulated institutions and the broader financial ecosystem as their adoption increases.

Under the new guidance, stablecoin issuers can operate without a banking license if they meet specific conditions, including securing a bank guarantee for depositor protection.

This framework allows stablecoin issuers to avoid obtaining a banking license by partnering with a registered lender to ensure customer repayment in case of default, which introduces risks for both holders and banks.

FINMA's guidance mandates that customers must have a claim against the bank providing the guarantee, ensuring that guarantees fully cover deposits and interest.

Additionally, banks are required to ensure that the deposits they receive do not exceed the coverage provided by the guarantees.

To align with traditional financial institutions, FINMA requires stablecoin issuers to comply with Anti-Money Laundering (AML) obligations.

This compliance includes verifying the identity of stablecoin holders and their beneficial owners as part of the AML regulations.

The guidance also highlights that any irregularities at stablecoin issuers could lead to reputational damage for the banks offering these guarantees.

While these measures enhance depositor protection, they do not provide the same level of security as a traditional banking license.