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Switzerland Enhances Legal Framework for DLT and Fintech

BERN, Switzerland - The Swiss Federal Council has introduced a new law aimed at enhancing legal certainty and removing obstacles for applications of Distributed Ledger Technology (DLT) in the country. The DLT Act addresses several key areas, including:

  • Civil securities law
  • Insolvency law
  • Financial market laws

Key Provisions

The new law creates a legal basis for:

  • Uncertificated register value rights as an instrument for the digitization or tokenization of assets such as shares, bonds, and other financial instruments.
  • Specific rules on the segregation of crypto-based assets from bankruptcy estates and provides access to data.

Additionally, the law introduces:

  • A new regulatory licence category for DLT trading facilities, defined as professionally operated venues for the multilateral trading of DLT securities, including register value rights and other value rights held on electronic registers.
  • Amendments to various implementing ordinances, including:
    • The Anti-Money Laundering Ordinance (AMLO), which specifically includes providers of services related to payment transactions concerning virtual currencies.
    • The Banking Ordinance, which creates a new variant of the “fintech licence”, enabling holders to engage in collective custody of cryptocurrencies.

FINMA Receptive to Fintech Innovation

The Swiss Financial Market Supervisory Authority (FINMA) has repeatedly expressed its openness to innovation in financial services and has taken steps to facilitate fintech start-ups. FINMA:

  • Has established a dedicated fintech desk.
  • Revised several circulars to render them technology-neutral.
  • Introduced simplified organisational requirements for small fintech companies.

Fintech Sandbox and Licence Options

FINMA’s regulatory sandbox provides an innovation space for fintechs to test their business models without prior approval or review by the regulator. The sandbox allows companies to:

  • Accept deposits from the public or hold cryptocurrencies up to a certain threshold, subject to certain conditions.

The fintech licence, also known as “banking licence light”, enables companies to accept deposits from the public up to a maximum threshold of CHF 100 million without engaging in commercial banking activities with maturity transformation. The licence is subject to less onerous requirements than a fully-pledged banking licence and is currently held by only five companies.

The DLT Act also provides for a new regulatory licence type in FinMIA for the operation of a DLT trading facility, which is required for the business of collective custody of cryptocurrencies.