New stablecoin regulations in Switzerland, requiring Know Your Customer (KYC) verification for all holders, have drawn sharp criticism from within the crypto community. Ripple CTO David Schwartz rebuked the law as a “know your customers’ customers” regulation, emphasizing the stringent requirements on financial intermediaries involved in stablecoin transactions.
Sure, just not “know your customers’ customers” regulations.
— David “JoelKatz” Schwartz (@JoelKatz) August 2, 2024
The Swiss Financial Market Supervisory Authority (FINMA) recently published the new law, mandating that the identity of all stablecoin holders be “adequately verified by the issuing institution.” FINMA views stablecoin issuers as financial intermediaries subject to anti-money laundering (AML) legislation, which necessitates KYC verification of stablecoin holders.
Notably, the new law further requires stablecoin issuers to establish the identity of beneficial stablecoin owners whenever there are doubts about any party’s identity during business transactions. It mandates the stablecoin issuer to re-establish the owners’ identity or repeat the verification process under such circumstances.
FINMA noted that the new regulation became necessary because of the increased risk of money laundering, terrorist financing, and sanctions circumvention in the region. The regulator highlighted such issues as the elements resulting in reputational risks for the Swiss financial center.
However, some crypto community members have questioned the necessity of the new law, analyzing its potential impact on the use of stablecoins, especially in P2P transactions. In response, a user on X highlighted that scrutinizing stablecoin holders all along the transaction process could seriously hamper their use of P2P transactions.
The user noted EU regulations are more flexible, only mandating KYC verification at the issuance and redemption stages of stablecoins. Meanwhile, another user highlighted the relatively insignificant size of the Swiss stablecoin market compared to emerging markets like Turkey and Thailand, that dominate stablecoin usage.
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