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
Serious consequences for Switzerland as a financial and blockchain location
The Swiss Blockchain Federation expresses profound concerns regarding the planned implementation of the Basel Standard on the regulatory treatment of crypto assets in Switzerland. This move would not be compatible with the blockchain strategy pursued by Switzerland to date and would signify a fundamental change in strategy.
Bern, 7 March 2024 – At the end of 2022, the Basel Committee on Banking Supervision (BCBS) adopted a new standard on the regulatory treatment of crypto-based assets held by banks. The committee is made up of central banks and banking supervisory authorities. It develops global standards for the regulation of banks. Switzerland is one of the founding members of the Basel Committee and is committed to adopting its standards as fully as possible. The Basel Crypto Standard is to be implemented in Switzerland by means of a partial revision of the Capital Adequacy Ordinance.
The Basel Crypto Standard, which was adopted at the end of 2022, sets out the capital requirements that banks must meet to cover market, counterparty and credit risks in connection with crypto assets. The core elements are a risk weight of 1,250% for crypto assets and an absolute upper limit for crypto risks of 1% (but in no case more than 2%) of a bank’s common equity tier 1 capital. Considering the capital buffer, the risk weight of 1,250% – the highest known under the Basel capital requirements – results in capital requirements of 130% to 200% of the book value of the crypto assets to be backed. In contrast, the Swiss Financial Market Supervisory Authority currently requires capital equivalent to the maximum risk of loss with a risk weighting of 800%. The upper limit of 4% of total capital, which applies according to the practice of the Financial Market Authority, is also significantly less strict.
The Regulatory Working Group of the Swiss Blockchain Federation conducted a thorough analysis of the Basel Crypto Standard. The group concluded that the capital adequacy requirements outlined in the standard are disproportionate when compared to the actual risks associated with banks holding crypto assets. The Swiss Blockchain Federation’s main points of criticism are:
- No technology-neutral regulation: The prohibitive capital requirements of the Basel Crypto Standard penalize the use of a specific technology and are therefore incompatible with the principle of technology-neutral regulation (same business, same risks, same rules).
- Undifferentiated: The Basel Crypto Standard lumps together crypto assets with very different risk profiles (cryptocurrencies, stablecoins, tokenized financial assets, etc.). This violates the principle of legal equality.
- Disproportionate: Capital requirements of up to 200% of the maximum risk of loss are disproportionate and not covered by the legal basis. According to these, the capital requirements must be determined “in accordance with the business activity and the risks”.
- Incompatible with Swiss blockchain strategy: Around 30 banks are currently active in the crypto business in Switzerland, including two specialized crypto banks. The Basel Committee’s proposals amount to building a firewall between the banking system and the crypto industry and are not compatible with the blockchain strategy pursued by Switzerland to date. In particular, they also contradict the position of Parliament, which unanimously approved the DLT Act in 2021. It has spoken out unequivocally in favor of Switzerland as a future-oriented blockchain and crypto location. Adopting the Basel Crypto Standard would be tantamount to a fundamental change in strategy.
The Swiss Blockchain Federation is firmly convinced that a complete adoption of the Basel Crypto Standard in the proposed form is neither politically nor legally justifiable. In view of the serious conceptual shortcomings of the Basel Crypto Standard, we propose the development of national regulation. We do not question the fact that holding crypto assets can give rise to risks for banks that are not fully covered by the existing regulation. This regulation must be based on the real risks and must respect the interests of Switzerland.
The Swiss Blockchain Federation stands ready to play a constructive role in this process and contribute its expertise to support the development of a regulatory framework that strengthens Switzerland as a financial and blockchain location while ensuring the integrity of the financial system.
You can download the position paper (available in German only) of the Swiss Blockchain Federation on the Basel Crypto Standard HERE.
