Finland -- Stablecoin Regulations Regulatory Overview

Finland's regulatory framework for stablecoins, like that of other EU member states, is undergoing a significant transformation due to the implementation of the Markets in Crypto-Assets Regulation (MiCA). Before MiCA, the approach was more fragmented, relying on existing financial legislation if stablecoins could be shoehorned into categories like e-money or securities.

Here's a breakdown of the regulatory framework:

1. The Dominant Framework: MiCA (Markets in Crypto-Assets Regulation)

Regulation (EU) 2023/1114 on markets in crypto-assets (MiCA) is the primary legislation governing stablecoins and other crypto-assets within the European Union, including Finland. MiCA will apply to asset-referenced tokens (ARTs) and e-money tokens (EMTs) from 30 June 2024, and to other crypto-assets from 30 December 2024.

• Official MiCA Text: Regulation (EU) 2023/1114

The Finnish Financial Supervisory Authority (FIN-FSA or Finanssivalvonta) is the competent authority responsible for supervising MiCA's implementation and compliance in Finland.

• FIN-FSA Information on MiCA: FIN-FSA - MiCA Regulation (in Finnish) (While primarily in Finnish, it confirms their role and the regulation's importance).

2. Stablecoin Classification under MiCA

MiCA specifically classifies stablecoins into two main categories:

• a) E-money Tokens (EMTs):

  • Definition: Crypto-assets that purport to maintain a stable value by referencing the value of one single fiat currency that is legal tender (e.g., a token pegged 1:1 to EUR or USD).
  • Regulatory Basis: These are essentially electronic money under MiCA. They are primarily regulated by Directive 2009/110/EC on the taking up, pursuit and prudential supervision of the business of electronic money institutions (E-money Directive), as implemented into Finnish law by the Act on Payment Institutions and Electronic Money (Laki maksulaitoksista ja sähkörahasta 297/2010). MiCA adds specific rules for crypto-asset aspects.
  • Finnish E-money Act: Laki maksulaitoksista ja sähkörahasta (297/2010) (in Finnish)

• b) Asset-Referenced Tokens (ARTs):

  • Definition: Crypto-assets that are not EMTs and purport to maintain a stable value by referencing any other value or right, or a combination thereof, including one or several official currencies that are not legal tender, one or several commodities or one or several crypto-assets, or a combination of such assets. (e.g., a token pegged to a basket of currencies, gold, or a portfolio of assets).
  • Regulatory Basis: These have a dedicated regime under MiCA (Title III).

• c) Other Crypto-Assets (not directly stablecoins under MiCA definitions):

  • If a stablecoin doesn't fit the strict definitions of an EMT or ART (e.g., a purely algorithmic stablecoin without a clear backing mechanism, or a token that isn't intended for payment/exchange and might qualify as a security), it would fall into other MiCA categories or potentially under existing securities laws. However, MiCA aims to be comprehensive for most crypto-assets.

3. Reserve Requirements

Under MiCA:

• For EMTs (Articles 52-54 MiCA):
  • Issuers must hold the funds received in exchange for EMTs in a segregated account with a credit institution or invest them in secure, low-risk assets.
  • The proceeds from the investment of these funds must be managed in a way that provides for sufficient liquidity.
  • The assets must be fully liquid, meaning they must be redeemable at par at any time.
  • They must be invested in assets denominated in the same currency as the EMT.
• For ARTs (Articles 35-39 MiCA):
  • Issuers must establish and maintain a reserve of assets that is separate from their own assets, and segregated in the interest of the holders of ARTs.
  • The reserve assets must be managed in an "effective and prudent manner," aiming to ensure that the ART can meet redemption requests.
  • A portion of the reserve must be held in highly liquid financial instruments.
  • The reserve assets must be held in custody by a credit institution or a regulated custodian.
  • Specific rules apply to the investment of reserve assets to ensure minimal market, credit, and operational risks.

4. Issuer Licensing

Under MiCA:

• For EMTs (Article 51 MiCA):
  • Issuers of e-money tokens must be authorized as a credit institution (bank) or an electronic money institution (EMI) in accordance with the E-money Directive and relevant national law (Finnish Act on Payment Institutions and Electronic Money).
  • They also need to publish a crypto-asset white paper and obtain approval from the FIN-FSA (or relevant national competent authority).
• For ARTs (Article 16 MiCA):
  • Issuers of asset-referenced tokens must be authorized by the FIN-FSA (or relevant national competent authority) as an issuer of ARTs.
  • Authorization requires, among other things, a sound administrative and accounting procedures, robust governance arrangements, effective risk management, adequate capital, and the publication of an approved crypto-asset white paper.

Prior to MiCA's full application (i.e., for virtual currency service providers dealing with stablecoins):

• The Act on Virtual Currency Service Providers (Laki virtuaalivaluutan tarjoajista 920/2019) requires providers of virtual currency services (e.g., exchanges, custodians) to register with the FIN-FSA. This act primarily focuses on AML/CFT compliance and does not regulate the issuance of stablecoins directly.
• Finnish Act on Virtual Currency Service Providers: Laki virtuaalivaluutan tarjoajista (920/2019) (in Finnish)
• FIN-FSA page on virtual currency providers: FIN-FSA - Virtual Currency Providers (in English)

5. Redemption Rights

Under MiCA:

• For EMTs (Article 53 MiCA):
  • Holders of e-money tokens have a right to redeem their tokens at any moment and at par value (1:1) with the fiat currency referenced by the token.
  • The redemption terms must be clearly stated in the white paper.
• For ARTs (Article 38 MiCA):
  • Holders of asset-referenced tokens have a direct right of redemption against the issuer at any time.
  • The redemption policy must be clearly detailed in the white paper, including conditions, procedures, and any fees. Redemption should be made in the assets referenced by the token or in fiat currency, as specified.

6. Algorithmic Stablecoin Rules

Under MiCA:

• MiCA explicitly states that it does not apply to crypto-assets that purport to maintain a stable value by referencing solely through algorithmic mechanisms (i.e., without backing assets) and that do not otherwise reference another value or right, or a combination thereof.
• However, if such an algorithmic mechanism fails to maintain a stable value and the crypto-asset starts to reference other assets or rights, it could potentially fall under the definitions of an ART or EMT, or another crypto-asset category under MiCA.
• In essence, MiCA deliberately excludes purely algorithmic stablecoins from its specific ART/EMT regime due to their inherent instability and risk, effectively making them unviable for mainstream use under the MiCA stablecoin framework. Issuing a widely adopted purely algorithmic stablecoin within the EU would be extremely challenging under this interpretation.

7. CBDC Interaction

The European Central Bank (ECB), in cooperation with national central banks like the Bank of Finland (Suomen Pankki), is actively exploring the issuance of a digital euro (a Central Bank Digital Currency or CBDC).

• Bank of Finland - Digital Euro: Bank of Finland - Digital euro

Interaction with private stablecoins:

• A digital euro would be a central bank liability, offering the highest level of safety and liquidity. Private stablecoins, whether ARTs or EMTs, are private sector liabilities, subject to the risks and regulations specific to their issuers.
• A CBDC would likely serve as a foundational layer for digital payments and could potentially compete with or complement private stablecoins. Its introduction could shift demand away from private stablecoins, especially for general-purpose payments, if it offers superior stability, privacy, or usability.
• Regulatory interaction is more about coexistence and establishing a level playing field for various digital payment instruments, rather than direct regulatory oversight of private stablecoins by the central bank (which falls under FIN-FSA). MiCA aims to ensure that private stablecoins maintain a high level of consumer protection and financial stability, thus preparing the ground for an ecosystem where a digital euro and regulated private stablecoins can co-exist, each serving different niches.

In summary: Finland's regulatory framework for stablecoins is now almost entirely driven by the EU's MiCA regulation. This provides a clear, comprehensive, and harmonized regime for stablecoins classified as E-money Tokens (EMTs) or Asset-Referenced Tokens (ARTs), covering all crucial aspects from licensing and reserve requirements to redemption rights. Purely algorithmic stablecoins are largely excluded from these specific rules, reflecting a cautious approach to their inherent risks. The FIN-FSA is the key national authority for implementing and enforcing MiCA.