-
Switzerlands’
financial
markets
supervisor
proposed
new
requirements
to
help
mitigate
the
risks
arising
from
banks
providing
a
default
guarantee
to
stablecoin
holders. -
In
the
event
of
irregularities
at
the
stablecoin
issuer,
the
bank
providing
the
default
guarantee
may
suffer
reputational
damage,
the
regulator
said.
Stablecoin
issuers
operating
in
Switzerland
create
a
risk
for
the
banks
they
work
with,
the
country’s
financial
markets
regulator,
FINMA,
wrote
in
guidance
published
on
Friday.
That’s
because
the
issuers,
who
take
deposits
from
the
public
and
might
otherwise
be
treated
as
banks
themselves,
can
obviate
the
need
for
a
banking
license
by
reaching
an
agreement
with
a
registered
lender
to
repay
their
customers
in
case
of
default.
“This
creates
risks
for
the
stablecoin
holders
and
the
bank
providing
the
default
guarantee,”
FINMA
said
in
the
guidance
note.
“In
the
event
of
irregularities
at
the
stablecoin
issuer,
the
bank
providing
the
default
guarantee
may
suffer
reputational
damage
due
to
its
contractual
relationship
with
the
issuer
and
may
also
be
exposed
to
legal
risks.”
Concern
over
the
backing
carried
by
issuers
of
stablecoins,
which
are
crypto
tokens
whose
value
is
tied
to
another
asset
such
as
the
U.S.
dollar
or
gold,
has
proliferated
for
years.
As
far
back
as
2021,
Tether,
whose
USDT
is
by
far
the
largest
stablecoin
by
market
cap,
published
its
first
account
of
reserves
to
deal
with
queries
about
its
funding.
Circle,
whose
USDC
is
the
No.
2,
followed
suit
in
2022.
FINMA’s
guidance,
which
builds
on
an
initial
note
from
2019,
sets
out
a
number
of
requirements
to
ensure
adequate
protection.
Customers
must
have
their
own
claim
against
the
guarantee-providing
bank,
and
the
guarantee
must
cover
the
full
amount
of
deposits
and
interest.
In
addition,
the
bank
must
ensure
that
the
deposits
it
receives
don’t
surpass
the
cover
provided
by
the
guarantee.
The
regulator
plans
to
ensure
that
the
risks
associated
with
default
guarantees
are
addressed
in
future
discussions.
