FinTechs belonging to this category offer financial services using crypto currencies. This category also includes FinTechs utilising blockchain and distributed ledger technologies (DLT) upon which Bitcoin and Ethereum are based, among others. FinTechs develop and do research in this field in order to create new services – e.g. crypto currency exchange markets, wallet providers, NFTs-related services, new payment services, "smart contracts" or new clearing and settling services.
Attitude of the country towards financial services using crypto currencies
Switzerland is one of the leading jurisdictions in the fields of DLT and blockchain. In particular in the financial sector, a growing FinTech and blockchain ecosystem has developed in recent years. In 2021, new provisions came into force (“DLT bill”) that will improve the market access of FinTech companies in the field of DLT/blockchain and raise legal certainty as well as move forward Switzerland’s position as a sustainable and innovative location in the DLT and blockchain area.
Obligations and requirements to provide financial services using crypto currencies described above
According to the ICO guidelines of FINMA, it considers payment tokens (crypto currencies) as tokens which are intended to be used, now or in the future, as a means of payment for acquiring goods or services or as a means of money or value transfer. FINMA announced that it will treat payment tokens (crypto currencies) not as securities. The issuing of payment tokens is not generally associated with claims for repayment and therefore such payment tokens do not fall within the definition of a deposit. Therefore, the issuance of payment tokens does in general not trigger a banking license requirement. However, FinTechs issuing payment tokens may be subject to the AMLA and respective obligations.
FinTechs that provide custody wallets for tokens and manage the private keys of the customers and, hence, have a direct power of disposal over third-party assets entrusted to them as the holder of the keys, provide a payment transaction service according to FINMA. The professional provision of a payment transaction service is governed by the AMLA. According to FINMA, no banking license is required for such FinTechs providing custody wallets, if the virtual currencies are stored separately on the blockchain for each customer and each deposit can be attributed to an individual customer at all times. FinTechs who provide non-custody wallets have neither a legal nor actual power of disposal over the third-party assets and, hence, such FinTechs are not subject to AMLA.
Asset tokens represent assets such as a debt or equity claim on the issuer. In the course of the enactment of the DLT bill, the definition of securities of the capital market laws was expanded to include not only standardised securities, book-entry securities, derivatives and book-entry securities suitable for mass trading – if they are publicly offered for sale in the same structure and denomination or are placed with more than 20 clients, i.e. they have not been created especially for individual counterparties – but also asset tokens (DLT securities), provided that they fulfil the same criteria and function. If asset tokens constitute securities, they fall under the securities regulation. The admission of asset tokens (DLT securities) to trading on a DLT trading facility triggers a prospectus requirement.
The creation and issuance of tokens which qualify as derivative products within the meaning of FinMIA to the public on the primary market is regulated and may trigger a license requirement as a securities firm or as a bank in accordance with the BankA. Underwriting and publicly offering of tokens, that qualify securities of third parties, on the primary market may trigger a license requirement as a securities firm or as a bank as well if it is carried out on a commercial basis.
If a trading platform aims to deal in asset tokens, in addition to payment and utility tokens, the asset tokens may qualify as securities as defined in the FinMIA. Platform securities trading is regulated by the FinMIA. A number of current FinTech projects involve establishing trading platforms enabling securities trading among several users (multilateral trading) without allowing any discretion for the trading venue operator to match supply and demand (non-discretionary trading). According to the FinMIA, trading platforms require a licence to operate as an exchange or multilateral trading system to trade in securities in this way. Under the law, only regulated institutions, but not private persons, may be admitted participating in an exchange or multilateral trading facility (“MTF”). Organised trading facilities (“OTFs”), on the other hand, allow discretionary bilateral or multilateral securities trading. OTFs may be operated by banks or securities dealers and, unlike exchanges and MTFs, may also admit private clients. Supply of and demand for tokens come together on trading platforms, for example in an order book. Centralised trading platforms manage clients’ crypto currency assets in their own wallets and have access to their private keys. They often hold client funds in a national currency or crypto currency over the long term. The funds taken (legal tender and crypto assets) may, under certain circumstances, qualify as public deposits, which require a licence under the BankA according to supervisory law. Decentralised trading platforms do not manage wallets for their clients. As a result, they only fall under banking law in certain aspects and only in specific instances, for example through smart contracts with a processing or repayment function. As long as they have power of disposal over the traded assets (for example by being able to release or stop transactions or orders), they are subject to AMLA.
If the sole purpose of utility tokens is to confer digital access rights to an application or service and if the utility token can actually be used in such way at the point of issue, utility tokens are not treated as securities either, according to the ICO guidelines of FINMA.
In this context, the FINMA directive on Initial Coin Offerings is worth mentioning. A respective FINMA license is required to operate a DLT trading facility.
Additional comments regarding the legal situation for financial services using crypto currencies or what FinTech’s must be aware of in this business area
Market size for financial services using crypto currencies and biggest companies in this business area
There are no reliable statistics for the market of virtual currencies in Switzerland available. However, Swiss National Bank considers crypto currencies and tokens based thereon as speculative investment instruments, which are of limited use as a means of payment and store of value due to the high volatility. In May 2021, the Diem Association (former Libra Association) has withdrawn its license application for a payment system license in Switzerland.
Most recently, the digital trading platform Six Digital Exchange (“SDX”) obtained FINMA licenses to operate as a stock exchange and as a central securities depository for digital assets in Switzerland. SDX is enabled to provide integrated trading, settlement, and custody infrastructure based on distributed ledger technology for digital securities.
Additional comments regarding the economic situation for financial services using crypto currencies or what FinTech’s must be aware of in this business area