Financial Crime World

Switzerland’s Financial Hub Faces Money Laundering Risks as Digital Currencies Gain Popularity

The Swiss financial industry is undergoing a significant transformation as digital currencies and electronic means of payment continue to gain traction globally. The rapid growth in demand for digital money presents both opportunities and challenges that must be overcome to maintain competitiveness and innovative power.

Challenges and Opportunities

  • Experts predict that the increasing importance of digital currencies such as Bitcoin and Facebook’s failed plans for Libra will accelerate work on private electronic payments and digital currencies worldwide.
  • Digital currencies offer significant economic benefits, including:
    • Programming money flows using smart contracts
    • Automating payments among machines with zero human intervention
    • Simplifying cross-border multi-currency transactions

Money Laundering Risks

  • The rapid growth in demand for digital currency also presents a major challenge - the risk of money laundering.
  • The Swiss Bankers Association (SBA) has identified the need for secure, instant payment methods that work across all channels to combat this risk.

Potential Solutions

  • One potential solution is the “Deposit Token” (DT), a digital currency in the form of tokenized deposits based on distributed ledger technology (DLT).
    • A stablecoin designed carefully could reduce risks, increase efficiency, and open up new areas of business.
    • The SBA’s white paper concludes that the DT can be a viable means of ensuring the financial centre’s competitiveness and strengthening the digital economy while safeguarding Switzerland’s economic and technological sovereignty.

Collaboration with Central Banks

  • The SBA is working closely with the Swiss National Bank (SNB) to develop a digital central bank currency.
    • However, there is no immediate need for a retail CBDC.
    • The Federal Council has published a detailed report on Central Bank Digital Currencies (CBDC), highlighting the potential benefits of innovation in digital means of payment.

Instant Payments

  • As instant payments become the norm, banks will be required to process transactions quickly and securely.
    • By 2024, larger banks with more than 500,000 transactions will need to offer instant payments.
    • All Swiss banks will have to receive instant payments by 2026.

Conclusion

  • The SBA’s efforts to develop a digital currency in the form of tokenized deposits are aimed at supporting the Swiss economy in settling digital assets transactions and payments in a digitalized economy.
  • As the financial industry continues to evolve, it is crucial that Switzerland’s banking system remains competitive and innovative while maintaining its commitment to combating money laundering risks.