Last month the Swiss Bankers Association (SBA) published a paper exploring the potential for stablecoins in Switzerland. While there was no mention of the Trump administration leaning into stablecoins, the paper highlighted the need to be globally competitive. Another reason for the paper was the Swiss regulator FINMA’s review of stablecoin rules announced last year.
The authors’ message was that stablecoins are an opportunity, and if Switzerland doesn’t have sufficient presence, it risks ceding ground to other currencies. They also explored risks with the usual concerns about replacing bank deposits. However, they “deliberately refrain from recommending a particular course of action.”
Today there are three sets of stablecoin activities in Switzerland. There are central money backed tokens, which are only available to accredited and institutional investors. These include offerings from digital asset bank Sygnum and the SIX Digital Exchange for settlement purposes. For mainstream stablecoins available to everyday users, there are one or two small coins available, but they don’t have recognizable brands. And then there are banks such as BBVA Switzerland that enable access to the big US dollar stablecoins.
Swiss stablecoins have steeper KYC/AML requirements
A significant factor limiting stablecoin growth in Switzerland is its regulatory approach. A key issue is mentioned by SBA at the very end of the paper – Switzerland requires the issuer to know the identity of every stablecoin holder at all times, not just at issuance or redemption. This is far stricter than most other jurisdictions. The SBA paper diplomatically states, “there has been criticism that FINMA has tightened its practice beyond the existing international standard and the money laundering principles applicable to date, to the detriment of issuers.” One Swiss lawyer described it as “Swiss gold-plating, pure and simple”, and combined with other rules stated that the current Swiss regulatory regime for stablecoins makes it “de facto impossible to issue a stablecoin in a manner that makes sense from an economic and business perspective”.
The issue is Switzerland doesn’t really have a stablecoin framework as such, using a patchwork of existing laws to regulate various types. Hence, it classifies them either as deposits or collective investment schemes. Non banks that issue them must have a bank guarantee, making them like deposit-like. This is currently the main route and FINMA is concerned about the risks to banks of these guarantees, which is one of the reasons it is revisiting the topic.
It is precisely this lack of cohesive stablecoin framework that the SBA would like to see addressed.
Swiss stablecoin proposals
These regulatory complications have led the SBA to explore alternative approaches for stablecoin implementation that could work within Switzerland. The paper explores potential backing assets with a desire for them to be sufficiently solid that they comply with the “no questions asked” principle. Using only central bank money as reserves would fit the bill closest. However, the authors note that the central bank has dismissed the likelihood of a retail CBDC, which would be very similar. They also conclude that this type of stablecoin could attract a large proportion of deposits, resulting in narrow banking.
Hence, the alternative is for stablecoin reserves to be a mix of central bank money, government securities and bank deposits.
Use cases and opportunities
Beyond the technical structure of stablecoins, the SBA paper examines their practical applications and potential benefits for the Swiss financial ecosystem. While the paper explores some of the typical stablecoin use cases such as for digital asset settlement, DeFi, payments and corporate cross border payments, it also emphasizes the importance of maintaining the Swiss Franc’s position in the global monetary system. On the one hand, if one were to look at global money as a pie, it wants to ensure that the Swiss Franc maintains or grows its piece of the pie.
Risk considerations
However, alongside these opportunities, the paper acknowledges several substantial risks that must be carefully managed, particularly regarding financial stability. If one takes the static pie view, then as stablecoin issuance increases, there will be less cash and/or fewer bank deposits.
The report states that “Stablecoins that can be issued on the basis of additional business volume offer potential earnings without adversely affecting lending.” This may be viable for a single bank that grows stablecoin usage by being faster to market and attracting new clients. But for banks as a whole, if stablecoins grow, deposits will likely decline.
While deposit displacement presents a challenge, the paper could have further explored alternative revenue streams that stablecoins might generate for banks. There are other potential income streams from custody, acting as intermediary for government bond purchases, on-ramping and off-ramping and foreign exchange. But whether these will make up for the potential loss of interest revenue on deposits remains to be seen.
The authors concluded, “Overall, the issuance of a Swiss franc stablecoin offers opportunities for Switzerland and its financial centre, but requires careful consideration and clear regulatory measures to manage the associated risks and exploit the full potential of this innovative technology.” This balanced perspective reflects Switzerland’s traditional approach of embracing innovation while maintaining its reputation for financial prudence and stability.
