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Swiss Regulatory Framework Welcomes Cryptocurrency Innovation

Zurich - Switzerland’s well-regarded financial market legislation has been shown to be adaptable and accommodating to the growth of cryptocurrencies and cryptoassets, with a recent update to its legal framework further solidifying its position as a hub for fintech innovation.

Recent Developments

In September 2020, the Swiss Parliament passed the Federal Act on the Adaptation of Federal Law to Developments in the Technology of Distributed Electronic Registers (DLT Act), which introduced significant changes to various federal acts. The DLT Act aimed to enhance legal certainty, remove obstacles for blockchain technology applications, and limit the risk of misuse.

Key Areas Addressed

  • Civil securities law
  • Insolvency law
  • Financial market laws

The amendments created a legal basis for uncertificated register value rights, enabling the digitization or tokenization of assets such as shares and bonds. It also introduced specific rules on the segregation of crypto-based assets from bankruptcy estates and provided new regulatory licence categories for distributed ledger technology (DLT) trading facilities.

Regulatory Environment

FINMA, Switzerland’s financial market regulator, has been praised for its openness to fintech innovation. The organization has established a dedicated fintech desk and revised several circulars to render them technology-neutral, simplifying regulatory requirements for fintech start-ups.

Regulatory Sandbox

  • Allows companies to test their business models without prior approval from the regulator
  • Exemption available for deposits up to CHF 1 million, provided they are not interest-bearing or invested

Fintech Licence

FINMA has introduced a fintech licence category, which authorizes companies to accept deposits from the public up to a maximum threshold of CHF 100 million, subject to less onerous requirements than traditional banking licences. The fintech licence is now also required for the business of collective custody of cryptocurrencies.

Guidance Documents

FINMA has issued several guidance documents regarding cryptocurrencies and cryptoassets, including:

  • Guidance on initial coin offerings (ICOs)
  • Stablecoins
  • Payments on the blockchain
  • Staking

Conclusion

Switzerland’s regulatory framework has demonstrated its ability to adapt to the rapidly evolving cryptocurrency landscape, providing a welcoming environment for fintech innovation. With its combination of legal clarity, regulatory flexibility, and supportive institutions, Switzerland is well-positioned to remain a hub for cryptocurrency activity and innovation in the years to come.