The Swiss Blockchain Federation (SBF) welcomes the planned revision of the Financial Market Infrastructure Act (FinfraG) and has submitted important comments as part of the consultation process. As the leading public-private partnership for the promotion of Switzerland as a blockchain location, the SBF sees the modernization of the FinfraG as a decisive step towards securing the competitiveness of the Swiss financial center and promoting the use of distributed ledger technologies (DLT).
In its consultation, the SBF highlights seven key points:
Positive assessment of the revision: the SBF expressly praises the careful review and structuring of the revision. It emphasizes that the revision is a necessary step to eliminate existing uncertainties. The SBF suggests that such systematic reviews should also be carried out regularly in the future in order to take into account the dynamics of technological developments in the financial market infrastructure.
Lack of definitions: The SBF proposes that clear and binding definitions for the terms “central securities depository” and “payment system” be enshrined in the law. These terms are currently so broad that they could theoretically affect almost any custodian or bank. A narrower definition could lead to greater legal certainty and prev
Rule of law principles: The SBF’s proposal provides for the legislator to establish clear and comprehensible criteria for the applicability of the FinfraG. Although the thresholds proposed in the draft revision provide guidance, the SBF believes that they are not sufficient. Instead, it calls for detailed guidelines on the application of the law in order to uphold the principle of legality.
Lack of future orientation: The SBF criticizes the fact that the draft revision focuses too strongly on existing structures and does not take sufficient account of future developments in the area of distributed ledger technologies (DLT). The SBF proposes that the principle of technology neutrality be clearly anchored in the law and that the future integration of trading and post-trading activities be expressly permitted in order to exploit innovation potential.
Strengthening the DLT trading system: In order to catch up with the implementation of DLT trading systems, the SBF calls for the licensing requirements for these systems to be simplified and accelerated. In addition, cooperation between the Swiss Financial Market Supervisory Authority FINMA and the companies concerned should be improved in order to remove obstacles in the approval process.
Slow licensing procedures: The SBF proposes integrating best practice approaches from the EU Regulation on Markets in Crypto Assets (MiCAR) into Swiss law in order to increase the efficiency of authorization procedures. For example, tighter deadlines and clearer requirements for the authorities could be introduced in order to shorten processing times.
Deregulation check: The SBF calls for a systematic review of unnecessary or obstructive regulations to be carried out as part of the revision of the law. Provisions that have proven to be superfluous or even counterproductive in practice should be deleted.
With these proposals, the Swiss Blockchain Federation is advocating future-oriented and innovation-friendly legislation that positions Switzerland as a leading blockchain location worldwide.
The Swiss Blockchain Federation’s comprehensive statement on the consultation (in German only) can be found at the following link: https://bit.ly/finfra_sbf
The Swiss Blockchain Federation is concerned about the supervisory communication from the Swiss Financial Market Supervisory Authority FINMA on stablecoins. The comprehensive identification of all users demanded by FINMA has no recognizable legal basis. FINMA’s requirements make it impossible for Swiss issuers to issue competitive stablecoins. In addition, the announcement came as a surprise and without consulting those affected.
Bern, 13 August 2024 – On 26 July 2024, FINMA published the supervisory communication “Stablecoins: Risks and requirements for stablecoin issuers and guarantee-issuing banks” (06/2024), which has caused unrest and criticism in the blockchain industry, as FINMA is going far beyond previous practice, which has also been criticized by the industry.
In this supervisory communication, FINMA expresses the view that issuers of stablecoins are obliged to register all holders of stablecoins as clients and to monitor their transactions. Stablecoins are electronic means of payment. The established practice for means of payment is to check the counterparty only at the time of issue and redemption. In a departure from this practice and international custom, FINMA now construes the existence of a claim between the stablecoin holder and the stablecoin issuer as a “permanent business relationship” and therefore a client relationship under the Anti-Money Laundering Act. This means that all persons in possession of stablecoins must be identified by the issuing institution or appropriately supervised financial intermediaries by means of a verified passport copy or other official documents.
In the opinion of the Swiss Blockchain Federation, such a requirement cannot be derived from the current Anti-Money Laundering Act. Classifying the temporary holding of a stablecoin as a “permanent business relationship” with the issuer goes far beyond what would be justifiable according to the meaning and purpose of the relevant regulations. In this respect, FINMA does not have a sufficient legal basis for its practice.
FINMA’s interpretation of the legal framework for money laundering goes significantly further than what is required by international standard setters and other countries. Neither the European Union nor Singapore, Hong Kong, Japan or the USA require the identification of all intermediate holders of a stablecoin or a restriction on its transferability. The Financial Action Task Force (FATF) – the most important international body for money laundering regulations – does not require this either. There are good reasons for this: Stablecoins, which can only be transferred between clients of a single institution, are unsuitable as a means of payment and therefore useless.
If this FINMA practice were to prevail, the issuance of stablecoins from Switzerland would effectively be made impossible because the restrictions communicated by FINMA would not allow for a viable business model. Swiss issuers of stablecoins are therefore forced to realize their project abroad. If they implement it in a member state of the European Union, they are subject to regulation tailored to this use case and can freely offer the stablecoin throughout the European Economic Area. In addition, they can also distribute the stablecoin in Switzerland without any restrictions, provided they do not have a permanent physical presence in Switzerland and, in particular, do not employ any staff.
Finally, the SER is disconcerted that FINMA has waived its statutory participation rights (Art. 7 para. 4 FINMASA) and that those directly affected have not been consulted. The SER has been advocating a constructive dialog with the authorities for years with the aim of ensuring the long-term stability of the financial centre and strengthening the pioneering role, competitiveness and future viability of Switzerland as a blockchain location.
What are stablecoins?
In order to exploit the potential of applications based on distributed ledger technology, digital means of payment are needed that enable transactions in an official currency such as the Swiss franc, the euro or the US dollar. Stablecoins are digital currencies that are backed by deposits or financial instruments in the corresponding official currency and therefore have a more or less stable value against the reference currency. In contrast to cryptocurrencies, which are unsuitable for transactions in official currencies due to their strong price fluctuations, stablecoins play a central role in decentralized finance and many other blockchain applications.
The Swiss Blockchain Federation updates its Staking Circular to reflect FINMA’s supervisory notice on staking.
Download the updated circular on staking (German only)
Bern, April 3, 2024 – Staking is an energy-efficient mechanism for consensus building in public blockchain networks such as Ethereum, Solana and Cardano. Participants receive a fee for depositing cryptocurrencies and validating transactions. Staking is becoming increasingly important. The market capitalization of staked assets is currently over USD 300 billion. Various staking models are available, including user-controlled staking (self-staking) and staking by service providers. Staking services are currently offered in Switzerland by both banks and other service providers that are subject exclusively to the Anti-Money Laundering Act.
FINMA published Supervisory Communication 08/2023 on this topic in December 2023. This was in response to a change in practice announced in summer 2023, which had met with strong resistance from the blockchain industry. According to the supervisory notice, under certain conditions, staked crypto-based assets also qualify as separable assets in bankruptcy. Accordingly, Swiss staking service providers still do not require a banking license. In addition, the prohibitive capital requirements in the crypto sector do not apply to banks that offer staking services.
The update of Circular 2023/01 “Staking” published today clarifies questions relating to bankruptcy and banking law that arose, among other things, on the occasion of the publication of the supervisory notice. Although the supervisory notice has clarified the fundamental issue of the bankruptcy law treatment of staked crypto-based assets in the sense of the blockchain industry, the conditions formulated by FINMA raise a whole series of new questions. This applies, for example, to the analogous application of the guidelines for fiduciary investments in multi-tier custody relationships. The circular also contains a new classification of staking under tax law. Both versions of the circular are available on the website of the Swiss Blockchain Federation (German only).
Like the first version, the update of the Staking Circular was prepared by a sub-working group of the Digital Assets Working Group under the leadership of Fabio Andreotti (Bitcoin Suisse). The Swiss Blockchain Federation would like to thank him and all members for their contributions.
Bern, 21.12.2023 – The Swiss Blockchain Federation (SBF) welcomes the announcement by the Swiss Financial Market Supervisory Authority (FINMA), which has clarified how staking services for cryptocurrencies are to be handled under financial market law. An announced change in practice had caused uncertainty and strong criticism in the industry.
The Swiss Blockchain Federation’s commitment and willingness to engage in dialogue have now borne fruit. The SBF published a circular on the topic of staking, issued a high-profile media release together with the Crypto Valley Association opposing FINMA’s planned regulation of staking services, pointed out the potential competitive disadvantages of Switzerland as a business location, organised two round tables with all key industry representatives and took part in two exchange meetings with the Swiss Financial Innovation Desk (FIND) and FINMA.
After months of hard work and discussions, a compromise is now on the table that guarantees legal certainty for the players and Switzerland as a blockchain location. FINMA’s requirements for recognising staked assets as safe custody assets (client consent, risk disclosure, clear allocation, BCM) are reasonable and correspond to the status quo for professional service providers. The special issues in connection with custody chains are justified. Finally, it is positive that regulated service providers (SROs) can continue to operate.
We would like to thank everyone who contributed to this positive result!
Summary
With this report, the Federal Council aims to provide an overview of the relevant legal framework and to clarify the need for action. The report should show
- that the Swiss legal framework is already suitable for dealing with business models based on DLT and blockchain,
- that Switzerland wants to further improve the innovation-friendly framework conditions and
- that the Swiss authorities are determined to rigorously combat abuses.
Civil law
- Civil law imposes no requirements – and accordingly no obstacles – for the transfer of cryptocurrencies. Consequently, there is no need to adapt civil law with regard to the transfer of cryptocurrencies.
- Tokens that represent a legal position (claim, membership, right in rem) should fulfil a function similar to the function presently and traditionally fulfilled by securities. Since an entry in a decentralised register accessible to interested parties can create publicity similar to the ownership of a security, it seems justified to attach similar legal effects to this entry. The Federal Council is proposing an amendment to securities law to increase legal certainty. The proven principles of securities law should be retained as much as possible. Digital representation and transfer is therefore possible only for those rights which could also be represented by a security and which are freely transferable. The planned legislative amendment should enable the legally secure transfer of uncertificated securities by means of entries in decentralised registers and be designed as technology-neutral as possible.
Insolvency law
- The Federal Council considers it necessary to provide for unambiguous rules regarding the segregation of crypto-based assets from the bankrupt’s estate. Such a right would require in any case that these assets could be unambiguously allocated to the third party. Additionally, the Federal Council considers it necessary to examine whether a right to segregation should be created with regard to data without financial value. As part of the planned consultation, the Federal Council will thus propose a legislative amendment that addresses these issues.
Financial market law
- In banking law, the Federal Council – in the light of the aforementioned proposed amendment to the Debt Enforcement and Bankruptcy Act – will examine a corresponding adjustment of bank insolvency law provisions (particularly in the area of the segregation of custody assets) and submit any adjustment proposals in the planned consultation.
- In financial market infrastructure law, the Federal Council is proposing the creation of a new authorisation category for infrastructure providers in the blockchain/DLT area. Furthermore, related amendments to the Financial Market Infrastructure Act and the new Financial Institutions Act are to be proposed with the aim of creating more flexibility.
- The Federal Council currently sees no need to amend the Financial Services Act (that will enter into force at the start of 2020) due to blockchain/DLT. The designated requirements, for example for informing customers, are particularly relevant for financial instruments based on blockchain/DLT, as such financial instruments are innovative and sometimes difficult to value, and they can experience very sharp fluctuations in value.
- In terms of collective investment schemes law, the Federal Council instructed the FDF in September 2018 to prepare a consultation on amending the Collective Investment Schemes Act by mid-2019 in order to allow for a new category of funds (so-called limited qualified investment funds, L-QIFs). As a result, new innovative products could be placed on the market more quickly and cost-effectively in the future.
- In the insurance sector, many blockchain/DLT projects are currently in their infancy. So far, no need for action in terms of financial market law has become evident, but a conclusive assessment is not yet possible.
Anti-money laundering law
- The Anti-Money Laundering Act is currently sufficiently technology-neutral to also cover activities related to cryptocurrencies and initial coin offerings (ICOs) to a large extent. The general principles of the Anti-Money Laundering Act also apply to cryptobased assets. The activities of most players in the crypto sector already qualify as financial intermediation and are therefore subject to the Anti-Money Laundering Act.
- So-called non-custodian wallet providers and certain decentralised trading platforms for cryptobased assets are not subject to the Anti-Money Laundering Act at the moment. The challenges arising in this connection generally have to be addressed internationally within the context of the work of the Financial Action Task Force. Against this backdrop, the Federal Council is currently refraining from proposing that non-custodian wallet providers be subject to the AntiMoney Laundering Act.
- In contrast, in order to increase clarity for market participants, the current subjection of decentralised trading platforms to the Anti-Money Laundering Act should be anchored more explicitly in law and the possible subjection of other such platforms should be examined in the light of international developments.
Source: https://www.newsd.admin.ch/newsd/message/attachments/55153.pdf
