Swiss regulator says stablecoin default guarantees pose risks to issuing banks

Issuers of stablecoins operating in Switzerland pose a risk to the banks they work with, FINMA, the Swiss financial marekt regulator, wrote in guidance published on Friday. This is because issuers take deposits from the public that might otherwise be considered banks themselves, and can waive the need for a banking licence by entering into an agreement with a registered lender to repay the loan in the event of a customer default. "This creates a risk for stablecoin holders and banks that provide a guarantee against default," FINMA said in the guidance note. "If a stablecoin issuer does anything wrong, the bank that provides a guarantee against default could suffer reputational damage as a result of its contractual relationship with the issuer and could also face legal risks."
FINMA's guidance builds on preliminary notes from 2019 and sets out a series of requirements to ensure adequate protection is provided. Customers must have their own claim against the bank providing the guarantee, which must cover all deposits and interest. In addition, banks must ensure that deposits they receive do not exceed the protection provided by the guarantee. The regulator plans to ensure that risks associated with default guarantees are addressed in future discussions.