Babbitt column | Swiss regulation of stable coins and Libra

According to the author: Switzerland is not the first country to include stable currency in regulation, but it is the first country to provide clear regulatory guidance on stable currencies and the first country to impose specific regulatory requirements on Libra projects. How Switzerland views stable coins, how to supervise Libra projects, or permits reference and reference for other countries.

On September 11, 2019, The Swiss Financial Supervisory Authority (FINMA) published a supplementary guide to the ICO Guidelines (“Stabilization Currency Guidelines”), which is applicable to the current stable currency projects in the Swiss market. Swiss financial market regulations provide guidance. On the same day, FINMA issued a press release confirming that it received an application from the Libar Association for the application of the Swiss regulatory rules for the Libra project (including Libra's issuance) and made relatively clear regulatory requirements for the Libra project.

At the beginning of the emergence and development of the stable currency, it has attracted the attention of the regulatory authorities at the project site. However, the relevant countries have not made a clear definition of the stable currency at the legal level, nor have they formulated special regulatory rules or guidelines on the issuance and circulation of stable currencies. Most of them have incorporated the regulation of stable currency into the existing legal framework of the country. Under the existing regulations, case-based supervision of specific projects – as in Singapore, stable currency may apply to the regulation of bonds and electronic money; in Malta, stable currency may apply to the regulatory rules of electronic money; in Japan, stable The currency may apply to the regulatory requirements of prepaid payment instruments; in the United States, stable currency may apply to the relevant provisions of the Securities Act. (For details on the regulatory policies and practices of the aforementioned countries on stable currencies, please refer to the author's previous column in Babbitt, “Reconsidering the Issues of Compliance with the Issuance of Stable Coins in Different Countries” .

The emergence of Libra, a stable currency project led by Facebook, is due to its ambition to build a monetary and financial infrastructure that transcends national borders, a large business empire behind the support, and a global application scenario. The multi-national partners have not only caused regulatory investigations by the US regulatory authorities, but also quickly focused on the eyes of other countries' regulatory authorities.

According to reports, Libra representatives recently met with 26 global central bank officials in Basel, Switzerland, to answer questions about the core issues related to digital currency; central bankers such as France and Germany questioned the Libra project and called for Libra to be prevented in Europe. The development of Libra may pose a threat to financial stability and even currency sovereignty.

The Swiss regulatory requirements for the Stabilizationcoin and Libra projects are different from those of other countries, not only because they may be the first international regulatory guidance specifically for stable currency, the first for Libra. How to apply the clear regulatory statement made by the country's financial regulations, it is also clear that the Swiss regulatory authorities clearly stated that the supervision of the Libra project requires global cooperation among governments, especially in the management of Libra reserves and the governance of the Libra Association. Structure, anti-money laundering and other aspects.

The author understands that regardless of the fate of the Libra project in the Eurozone or other countries, Switzerland's regulatory guidelines and statements on Stabilizing Coins and Libra are still relevant and reference for other countries' regulation of Stabilizing Coins and Libra.

1. Switzerland's supervision of stable currency

(1) Regulatory principles

FINMA's regulatory guidelines for Swiss financial markets are “principle-based, technology-neutral”. Its regulatory thinking on the country's stable currency is essentially the same as its regulatory approach to other tokens. The main point of supervision is not whether the relevant token is called a stable currency. (In FINMA's view, the stability of the stable currency is mainly a market. Propaganda language), but the economic function and purpose of the stable currency based on the blockchain.

While taking into account the different characteristics of different stable currency projects, FINMA will supervise the stable currency according to the regulatory principles of “substance over form”, “same risk, same rule”.

FINMA believes that the creation of stable currency may involve licensing requirements under the laws and regulations such as the Swiss Banking Act and the Collective Investment Plan Act. At the same time, because the stable currency is often used as a payment instrument, the Anti-Money Laundering Act usually also applies. In addition, if an important payment system is involved in the creation of a stable currency project, the issuer is required to obtain a payment system license in accordance with the provisions of the Financial Market Infrastructure Act (FMIA).

(2) Regulations

According to the "Guidelines for Stabilizing Coins", FMIA and the relevant laws of Switzerland, in view of the fact that there may be large differences in the specific design of technical, functional, legal and economic aspects of different stable currency projects, Switzerland does not have uniform regulatory rules, but The following two factors need to be considered, and different regulatory rules (including but not limited to anti-money laundering, securities trading, banking, fund management, financial infrastructure, etc.) apply to different stable currency items: (a) Stabilized currency linked The underlying assets (such as currency, commodities, real estate or securities); and (b) the specific rights enjoyed by holders of stable currencies (the right to contract (or redemption) or ownership of the assets linked to the stable currency).

According to the annex of the news announcement issued by FINMA, combined with the author's understanding of FMIA and other relevant regulations, FINMA's main regulatory requirements for the specific classification and reference of stable currency are as follows:

Table 1

2. Swiss regulatory requirements for the Libra project

(1) Libra project needs to obtain payment system license

According to a press release issued by FINMA, the Libra project is a payment system that applies to the regulation of FMIA and other related regulations.

According to FIMA, a payment system is an entity that settles and liquidates payment obligations in accordance with uniform rules and procedures, which is one of the six types of financial market infrastructure defined by the FMIA. The establishment of a financial market infrastructure in Switzerland requires the authorization of FINMA, and the Libra project as a payment system requires a payment system license.

According to FINMA's press release, one of the necessary conditions for Libra to obtain a payment system license is that the risks and benefits associated with Libra's reserve management are solely borne by the Libra Association and not by Libra holders.

(2) Applying PFMI international standards

Switzerland's regulation of financial market infrastructure is based primarily on the internationally recognized Financial Market Infrastructure Principles (PFMI) standard. There are 24 principles under this standard that clarify the minimum requirements that financial market infrastructure needs to meet; among them, in terms of payment systems, covering legal basis, governance, comprehensive risk management framework, credit and liquidity risk management, final settlement, Currency settlement, value exchange settlement system, default management, general business risk, custodial and investment risk, operational risk management, access, efficiency and transparency.

In other words, Switzerland's regulation of the Libra project will also apply to the PFMI international standard.

(3) Basic compliance requirements

As a payment system, the Libra project naturally needs to comply with anti-money laundering and KYC regulations.

In addition, according to FMIA regulations, the author understands that the Libra project as a payment system also needs to meet the requirements of organization, minimum capital, business continuity, IT system, conflict of interest prevention, major event reporting, information disclosure, record keeping, etc. .

(4) Additional compliance requirements

According to FINMA's press release, the Libra project plans to provide more services than the general payment system due to the release of Libra, a payment-type token in the Libra project.

If the services provided by the Libra project increase the risk of the payment system, the Libra project will also need to meet other additional compliance requirements, and the regulator may therefore be in terms of capital allocation, risk concentration, liquidity and Libra reserve management. The Libra project made additional requests.

In addition, if the risks generated by the Libra project are similar to bank risks, the regulatory requirements related to Swiss banking law will also apply to the Libra project, and Switzerland may impose a hybrid supervision of the banking and financial infrastructure on the Libra project. The author understands that if the Libra project also provides banking-like services, it may even need to obtain a banking license in addition to obtaining a payment system license.

Quote: [1] For FMIA regulations, please see

Author: Zhang Ling, a partner at law firm Han Disclaimer: This article represents only personal point of view, do not represent the views of their organizations. The contents of this article do not constitute legal advice and investment advice. To reprint or cite any of the content in this article, please include the author's name.