CMS Expert Guide to Crypto Regulation in Switzerland

Disclaimer: This chapter was last updated on 15 September 2023 and does not reflect any subsequent developments. The information provided is intended for general informational purposes and should not be construed as legal advice.

1. How is crypto regulated?

AML RegulationFinancial Services Regulation

Main AML regulations:

  • Swiss anti-money laundering act (AMLA)
  • Swiss anti-money laundering ordinance (AMLO)
  • FINMA anti-money laundering ordinance (AMLO-FINMA)
  • Self-Regulated Organization (SRO) rules
    • AML rules essentially require the financial intermediary (other than a bank, Fintech licensed institution, securities firms, asset managers, DLT trading platform) to be registered with an SRO. Registered and not registered financial intermediaries are subject to the same AML rules and yearly audit requirements.

Main financial services regulations:

  • Banking Act (BA) and Banking Ordinance (BO) – Ordinary banking license.
  • Financial Market Infrastructure Act (FMIA) – DLT trading facility license, which enables multilateral trading of tokens qualifying as securities (DLT securities) and possibly other assets. In addition to trading, the DLT trading facility license allows for the custody of DLT securities as well as settlement and clearing of transactions in DLT securities.
  • Fintech rules (specific regime in the BA/BO) – a FinTech license allows institutions to accept public deposits of up to CHF 100 million, provided that these are not invested and no interest is paid on them. Besides that, a Fintech license also allows institutions to accept crypto-based assets as (pooled) deposit values up to a maximum amount to be defined by FINMA for the specific cases, again, provided that these are not invested and no interest is paid on them.
  • Financial Institutions Act (if the token is qualified as a financial instrument) (FinIA) – Asset/Portfolio Management licenses or securities firms license.
  • Financial Services Act (if the token is qualified as a financial instrument) (FinSA) – FinSA does not trigger licensing requirements, but may trigger a registration requirement and entails the application of certain rules of conduct and documentation for undertakings within its scope of application.

 

On 1 August 2021, the new Swiss DLT-Act fully entered into force. Drawn up as a blanket Act providing for selective adjustments in a total of nine Swiss federal laws, it has, in particular, introduced the following:

  • Civil law: Introduction of ledger-based securities, which are represented on the blockchain (i.e. register uncertificated securities).
  • Financial market infrastructure law: Introduction of a new infrastructure authorization type, the so-called DLT trading facility for the multilateral trading of DLT-securities.
  • Insolvency and banking law: Introduction of significant clarifications to Swiss insolvency and banking law, setting out the requirements for digital assets to be segregated from the bankrupt’s estate of the custodian.
  • Generally and pursuant to FINMA’s practice, every token/crypto-business needs to be assessed based on its own merits and under existing “standard” regulation.
  • In doing so, FINMA categorizes every token in one of the following categories: payment, utility or asset token (plus the residual category of hybrid token).
  • Crypto-currencies are generally qualified as payment tokens pursuant to FINMA practice. FINMA follows a matter-over-form-approach, which makes it necessary to check the specific usage and characteristics of a given token and not the terminology.
  • Pure utility tokens are generally not subject to Swiss financial market regulations.
  • Asset tokens may qualify as financial instruments and/or securities (securities are financial instruments, but for instance OTC derivatives are not securities but remain financial instruments).

2. Are the following activities regulated or unregulated in your jurisdiction? ― Exchange (buy/sell) ― Custody (hold) ― Borrowing/lending ― Yield/staking

AML RegulationFinancial Services Regulation
  • Exchange of crypto-currencies (payment tokens) is a minima regulated under the AMLA/AMLO (mere registration and KYC/KYT rules, plus audit on compliance with KYC/KYT-AML rules).
  • Custody services are generally subject to the requirements of the AMLA/AMLO.
  • Lending activities are at least regulated under the AMLA/AMLO.
  • Yield/farming of native tokens or “pure” crypto-currencies is not per se regulated, but, depending on the set-up, may be regulated under the AMLA/AMLO (if such activities are conducted on behalf of a client by a third party intermediary).
  • The exchange/trading of tokens that qualify as securities is regulated under the FMIA (see for instance SDX on https://www.sdx.com).
  • Custody is regulated under the BA/BO or Fintech rules (see above, first question; under such rules, in particular, if more than CHF 100 million are under custody, a fully-fledged banking license is required, if the assets qualify as public deposits).
  • Security custody (if the token qualifies as a security) can possibly trigger a licensing requirement under the FMIA in certain circumstances.
  • Borrowing is regulated under the BA/BO (i.e. whoever refinances itself to a considerable extent with several banks in which it does not hold a significant interest, in order to finance in any way for its own account an indefinite number of persons or undertakings with which it does not form a single economic unit requires a banking license).
  • Companies involved in trading activities, which entail the execution of trades on tokens that qualify as securities on behalf of their clients require a license as a securities firm under the FinIA (own account trading is also regulated if certain thresholds are met).
  • Lending activities can be regulated under the BA/BO (excluding consumer loans that are regulated under the Credit Consumer Act), if the lending activity is similar to the credit activity of a bank (where borrowed money is lent to other clients with a spread on the interest).
  • Yield/staking of asset tokens can possibly trigger a licensing requirement under the FinIA in certain circumstances.
  • On-chain segregated custody of crypto-currencies or other digital assets (including asset tokens/securities or utility tokens) does generally not trigger BA/BO licensing requirements.
  • Under certain circumstances, the acceptance of ‘public deposits’ is not deemed to be at hand, if fiat or crypto-currencies, which are used solely for the settlement of client transactions, are kept for less than 60 days in the account of the institution.

3. How long would establishing a cryptoasset business/obtaining a license in your jurisdiction take?

AML RegulationFinancial Services Regulation
Approximately 6-9 weeks for AML-only regulated business.
  • Approximately 18-36 months for a bank under BA/BO, securities firm under FinIA or DLT trading facilities under FMIA.
  • Approximately 5-9 months for a Fintech license.

4. What would be the approximate overall cost of obtaining a licence?

AML RegulationFinancial Services Regulation

Application fee of the SRO approximately amounts to CHF 2’000 plus VAT. In addition, further fees will occur, such as for audits, annual membership fees of the respective SRO, trainings, consulting services, etc.

Legal and other professional fees will be necessary.

Application fee of the FINMA will depend on the particular case.

Legal and other professional fees will be necessary.

DISCLAIMER: The effective overall cost of obtaining a license will highly depend on the individual case and details.

5. What is the probability (%) of success in obtaining a licence?

AML RegulationFinancial Services Regulation
More than 80% for AML registrations, provided that the business plan is clear and the rest of the documentation is complete and well organized (in particular with respect to fit-and-proper test on directors, executive members and qualified shareholders).
  • More than 70% for a Fintech license, if the business plan provided is clear (in particular with respect to fit-and-proper test on directors, executive members and qualified shareholders) and the rest of the documentation is complete and well organized.
  • Depending on the business case, FINMA will generally investigate “heavy” license applications for institutions such as banks, securities firms and DLT trading platforms very thoroughly.

DISCLAIMER: All of these probabilities are pure estimates and do not provide any guarantee on the outcome of the licensing process. The effective probability will highly depend on the individual case and details.

6. What other limitations are there in your jurisdiction when looking to set up a cryptoasset business? E.g., Compliance requirements and physical presence

AML RegulationFinancial Services Regulation
Substance in Switzerland is generally required including for “mere” AML-type of license/registration.
  • A Fintech license requires compliance/risk functions to be implemented (but can be outsourced to a qualified third party if supervision is ensured).
  • A banking license and other “heavy” licenses, such as the securities firm, DLT trading facility and banking license also require a risk/compliance function; in addition, corporate governance must also be implemented and financial requirements will apply (minimum capital and capital adequacy apply, including liquidity ratio, unless exemption is available).

Among other conditions, the prerequisites for obtaining a banking license are:

  • fully paid-up minimum capital of at least CHF 10 million;
  • effective management of the bank from Switzerland;
  • separation of board of directors and executive management;
  • effective separation of internal functions – in particular lending, trading, asset management and settlement;
  • effective internal control systems, internal audit function independent of executive management;
  • applicants under foreign control (additional licensing requirement if the bank is controlled by a foreign shareholder): reciprocal rights on the part of the countries where qualified participants are domiciled;
  • if the bank is part of a financial group: adequate consolidated supervision by a recognized supervisory authority.

Among other conditions, the prerequisites for obtaining a Fintech license are:

  • fully paid-up and permanently held minimum capital of 3 percent of the accepted public deposits and the accepted crypto-based assets held in collective custody, but at least 300,000 Swiss francs;
  • effective management of the FinTech from Switzerland;
  • at least one third of the members of the board of directors must be independent of the executive management;
  • effective internal control systems, independent of the profit-oriented business within the company;
  • applicants under foreign control (additional licensing requirement if the FinTech is controlled by a foreign shareholder): reciprocal rights on the part of the countries where qualified participants are domiciled;
  • if the Fintech company is part of a financial group: adequate consolidated supervision by a recognized supervisory authority.

Facilitated regulatory requirements for a Fintech company, compared to a bank include:

  • Accounting and financial reporting.
  • Accounting for Fintechs is governed exclusively by the provisions of the Code of Obligations. Accordingly, bank-specific regulations such as Art. 6 et seq. BA and Art. 25 et seq. BO do not apply to them.
  • Audit under the law of obligations.
  • Fintechs must have their annual financial statements and, if applicable, their consolidated financial statements audited in accordance with the provisions of the CO.
  • Supervisory audit:
    Fintechs may be audited by persons for whom less stringent admission requirements may apply compared to bank auditors. However, this facilitation only concerns the selection of the audit firm. The audit obligation within the meaning FINMASA exists nevertheless.
  • Capital adequacy and deposit insurance:
    Fintech companies are not subject to the provisions of the Capital Adequacy Ordinance or the Liquidity Ordinance. Thus, in principle, only 3% of public deposits and collectively held crypto-based assets, but at least CHF 300,000, are mandatory as minimum capital. However, the BO allows FINMA to impose a higher minimum capital requirement in individual cases if this appears to be necessary. 
  • Deposit insurance:
    Fintech companies do not have to join Esisuisse as a self-regulation for deposit insurance and are exempt from the higher liquidity requirements applicable to deposit insurance. However, they must clearly communicate this exemption to customers before they make deposits.
Portrait ofTina Balzli
Tina Balzli, LL.M. (NYU), LL.M. (NUS)
Partner
Zurich
Portrait ofVaïk Müller
Dr Vaïk Müller
Partner
Geneva