Switzerland is about to complete the fundamental adaptation of its legal framework to DLT realityOther noteworthy developmentsConclusion
Thursday, 10 December, 2020
The Digital Regulator
Swiss DLT regulatory framework implementation
During the past few months, the Swiss Parliament endorsed the Federal Act adapting federal laws to distributed ledger technologies (DLTs). The project began in late 2018, and the Swiss Federal Council (FC) adopted the dispatch on the framework conditions for DLTs in November 2019. The FC initiated the consultation on adapting various ordinances on 19 October 2020. The consultation ends on 2 February 2021, as does the process of fundamental adaptation of the Swiss legal framework to DLTs. At that point, Switzerland will feature the most comprehensive and articulated DLT regulatory framework globally. Realised through the adaptation of existing laws, as opposed to introducing a dedicated Act, this framework would offer entrepreneurs, investors, and consumers the highest regulatory certainty in the blockchain space—a primacy likely to persist for some years.
The month of November 2020 recorded some other noteworthy regulatory developments in the digital space. Switzerland’s FC created a Green Fintech Network, deemed to strengthen the sustainability of fintech initiatives. The Swiss Financial Market Supervisory Authority (FINMA) began consultation on upgrading video identification guidelines to allow for scanning the biometric passport chip. The Financial Action Task Force (FATF) sent a clear message to peer-to-peer (P2P) crypto exchanges, anticipating Anti-Money Laundering (AML) & Combating the Financing of Terrorism (CFT) standards. China’s President asked the G20 nations to support Central Bank Digital Currency (CBDC) initiatives through global standards.
Switzerland is about to complete the fundamental adaptation of its legal framework to DLT reality
Switzerland has been developing a regulatory framework for DLTs since 20142014link1, following the principle of ‘technological neutrality’. Consequently, Switzerland has been adapting existing principles-based laws to technological innovation in a pragmatic way, aiming to preserve systemic stability, grant consumer protection and favour sustainable investments in the DLT space. The ongoing consultation on the adaptations to various implementing ordinances of civil and financial laws marks a fundamental milestone, ensuring the legality of assets transactions on DLT platforms, authorising DLT-based trading systems and codifying the treatment of DLT-based assets in bankruptcy procedures. The development of DLT-based regulation has been characterised by regular consultations with the relevant stakeholders and has gained a remarkably high political support. The expectation is therefore for a swift finalisation and approval of the changes to the implementing ordinances and for a timely entry into force of the regulatory framework in 2021.
The changes envisaged are expected to increase the attractiveness of the crypto nation, Switzerland, by providing comprehensive legal certainty. This will concern entrepreneurs eager to offer DLT-based products and services, who will also benefit from size-based reliefs concerning governance, capital and liquidity requirements in the case of DLT-based trading systems. It will concern consumers, who will be able to reap the benefits of financial innovation in a protected and transparent environment (reference is, in particular, to bankruptcy rules and transparency requirements as well as the supervisory activity applicable to providers of DLT-based financial services). The overwhelming support for the legislative process since its launch in autumn 2018 and the broad involvement of stakeholders throughout the process would encourage a swift start in enforcing the rules; the industry would wish this to be earlier than 1 August 2021 for the fundamental changes to the Code of Obligations providing legal certainty to the tokenisation business.
Other noteworthy developments
Switzerland’s FC has created a Green Fintech Network, and the FINMA has begun upgrading its video and online identification requirements. These initiatives reinforce the leadership of the digital nation, Switzerland.
The topic of CBDCs continued to record new initiatives, witnessing broad interest of financial regulatory bodies globally.
Several jurisdictions have begun regulatory initiatives aimed to improve crypto finance business conditions, witnessing further steps in the creation of supporting frameworks globally.
The ongoing consultation on the adaptations of several implementing Ordinances in Switzerland is the last step in the process, which began in November 2018, of fundamentally developing the Swiss legal framework to create a supportive and risk-controlled environment for DLT-based products and services. The completion of the process will provide Switzerland with the most comprehensive and articulated DLT regulatory framework globally, realised through the adaptation of current laws as opposed to introducing a dedicated Act.
November 2020 was characterised by several noteworthy regulatory developments in the digital space, including the creation—at the federal level in Switzerland—of a Green Fintech Network aimed to increase sustainability in the fintech space, the start of a consultation by FINMA on upgrading video identification guidelines to account for technological progress, the announcement of AML & CFT standards for P2P crypto exchanges by the FATF, and the call to G20 nations by the President of China to support CBDCs with dedicated global standards.
Subscribe to the research newsletter and get weekly updates about the latest articles of SEBAresearch
Subscribe to newsletter↓
This document has been prepared by SEBA Bank AG (“SEBA”) in Switzerland. SEBA is a Swiss bank and securities dealer with its head office and legal domicile in Switzerland. It is authorized and regulated by the Swiss Financial Market Supervisory Authority (FINMA). This document is published solely for information purposes; it is not an advertisement nor is it a solicitation or an offer to buy or sell any financial investment or to participate in any particular investment strategy. This document is for distribution only under such circumstances as may be permitted by applicable law. It is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or would subject SEBA to any registration or licensing requirement within such jurisdiction.
No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained in this document, except with respect to information concerning SEBA. The information is not intended to be a complete statement or summary of the financial investments, markets or developments referred to in the document. SEBA does not undertake to update or keep current the information. Any statements contained in this document attributed to a third party represent SEBA's interpretation of the data, information and/or opinions provided by that third party either publicly or through a subscription service, and such use and interpretation have not been reviewed by the third party.
Any prices stated in this document are for information purposes only and do not represent valuations for individual investments. There is no representation that any transaction can or could have been effected at those prices, and any prices do not necessarily reflect SEBA’s internal books and records or theoretical model-based valuations and may be based on certain assumptions. Different assumptions by SEBA or any other source may yield substantially different results.
Nothing in this document constitutes a representation that any investment strategy or investment is suitable or appropriate to an investor’s individual circumstances or otherwise constitutes a personal recommendation. Investments involve risks, and investors should exercise prudence and their own judgment in making their investment decisions. Financial investments described in the document may not be eligible for sale in all jurisdictions or to certain categories of investors. Certain services and products are subject to legal restrictions and cannot be offered on an unrestricted basis to certain investors. Recipients are therefore asked to consult the restrictions relating to investments, products or services for further information. Furthermore, recipients may consult their legal/tax advisors should they require any clarifications. SEBA and any of its directors or employees may be entitled at any time to hold long or short positions in investments, carry out transactions involving relevant investments in the capacity of principal or agent, or provide any other services or have officers, who serve as directors, either to/for the issuer, the investment itself or to/for any company commercially or financially affiliated to such investment.
At any time, investment decisions (including whether to buy, sell or hold investments) made by SEBA and its employees may differ from or be contrary to the opinions expressed in SEBA research publications.
Some investments may not be readily realizable since the market is illiquid and therefore valuing the investment and identifying the risk to which you are exposed may be difficult to quantify. Investing in digital assets including cryptocurrencies as well as in futures and options is not suitable for every investor as there is a substantial risk of loss, and losses in excess of an initial investment may under certain circumstances occur. The value of any investment or income may go down as well as up, and investors may not get back the full amount invested. Past performance of an investment is no guarantee for its future performance. Additional information will be made available upon request. Some investments may be subject to sudden and large falls in value and on realization you may receive back less than you invested or may be required to pay more. Changes in foreign exchange rates may have an adverse effect on the price, value or income of an investment. Tax treatment depends on the individual circumstances and may be subject to change in the future.
SEBA does not provide legal or tax advice and makes no representations as to the tax treatment of assets or the investment returns thereon both in general or with reference to specific investor’s circumstances and needs. We are of necessity unable to take into account the particular investment objectives, financial situation and needs of individual investors and we would recommend that you take financial and/or tax advice as to the implications (including tax) prior to investing. Neither SEBA nor any of its directors, employees or agents accepts any liability for any loss (including investment loss) or damage arising out of the use of all or any of the Information provided in the document.
This document may not be reproduced or copies circulated without prior authority of SEBA. Unless otherwise agreed in writing SEBA expressly prohibits the distribution and transfer of this document to third parties for any reason. SEBA accepts no liability whatsoever for any claims or lawsuits from any third parties arising from the use or distribution of this document.
Research will initiate, update and cease coverage solely at the discretion of SEBA. The information contained in this document is based on numerous assumptions. Different assumptions could result in materially different results. SEBA may use research input provided by analysts employed by its affiliate B&B Analytics Private Limited, Mumbai. The analyst(s) responsible for the preparation of this document may interact with trading desk personnel, sales personnel and other parties for the purpose of gathering, applying and interpreting market information The compensation of the analyst who prepared this document is determined exclusively by SEBA.
Austria: SEBA is not licensed to conduct banking and financial activities in Austria nor is SEBA supervised by the Austrian Financial Market Authority (Finanzmarktaufsicht), to which this document has not been submitted for approval. France: SEBA is not licensed to conduct banking and financial activities in France nor is SEBA supervised by French banking and financial authorities. Italy: SEBA is not licensed to conduct banking and financial activities in Italy nor is SEBA supervised by the Bank of Italy (Banca d’Italia) and the Italian Financial Markets Supervisory Authority (CONSOB - Commissione Nazionale per le Società e la Borsa), to which this document has not been submitted for approval. Germany: SEBA is not licensed to conduct banking and financial activities in Germany nor is SEBA supervised by the German Federal Financial Services Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht), to which this document has not been submitted for approval. Hong-Kong: SEBA is not licensed to conduct banking and financial activities in Hong-Kong nor is SEBA supervised by banking and financial authorities in Hong-Kong, to which this document has not been submitted for approval. This document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in Hong-Kong where such distribution, publication, availability or use would be contrary to law or regulation or would subject SEBA to any registration or licensing requirement within such jurisdiction. This document is under no circumstances directed to, or intended for distribution, publication to or use by, persons who are not “professional investors” within the meaning of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and any rules made thereunder (the “SFO”). Netherlands: This publication has been produced by SEBA, which is not authorised to provide regulated services in the Netherlands. Portugal: SEBA is not licensed to conduct banking and financial activities in Portugal nor is SEBA supervised by the Portuguese regulators Bank of Portugal “Banco de Portugal” and Portuguese Securities Exchange Commission “Comissao do Mercado de Valores Mobiliarios”. Singapore: SEBA is not licensed to conduct banking and financial activities in SIngapore nor is SEBA supervised by banking and financial authorities in Singapore, to which this document has not been submitted for approval. This document was provided to you as a result of a request received by SEBA from you and/or persons entitled to make the request on your behalf. Should you have received the document erroneously, SEBA asks that you kindly destroy/delete it and inform SEBA immediately. This document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in Singapore where such distribution, publication, availability or use would be contrary to law or regulation or would subject SEBA to any registration or licensing requirement within such jurisdiction. This document is under no circumstances directed to, or intended for distribution, publication to or use by, persons who are not accredited investors, expert investors or institutional investors as defined in section 4A of the Securities and Futures Act (Cap. 289 of Singapore) (“SFA”). UK: This document has been prepared by SEBA Bank AG (“SEBA”) in Switzerland. SEBA is a Swiss bank and securities dealer with its head office and legal domicile in Switzerland. It is authorized and regulated by the Swiss Financial Market Supervisory Authority (FINMA). This document is for your information only and is not intended as an offer, or a solicitation of an offer, to buy or sell any investment or other specific product.
SEBA is not an authorised person for purposes of the Financial Services and Markets Act (FSMA), and accordingly, any information if deemed a financial promotion is provided only to persons in the UK reasonably believed to be of a kind to whom promotions may be communicated by an unauthorised person pursuant to an exemption under the FSMA (Financial Promotion) Order 2005 (the “FPO”). Such persons include: (a) persons having professional experience in matters relating to investments (“Investment Professionals”) and (b) high net worth bodies corporate, partnerships, unincorporated associations, trusts, etc. falling within Article 49 of the FPO (“High Net Worth Businesses”). High Net Worth Businesses include: (i) a corporation which has called-up share capital or net assets of at least £5 million or is a member of a group in which includes a company with called-up share capital or net assets of at least £5 million (but where the corporation has more than 20 shareholders or it is a subsidiary of a company with more than 20 shareholders, the £5 million share capital / net assets requirement is reduced to £500,000); (ii) a partnership or unincorporated association with net assets of at least £5 million and (iii) a trustee of a trust which has had gross assets (i.e. total assets held before deduction of any liabilities) of at least £10 million at any time within the year preceding the promotion. Any financial promotion information is available only to such persons, and persons of any other description in the UK may not rely on the information in it. Most of the protections provided by the UK regulatory system, and compensation under the UK Financial Services Compensation Scheme, will not be available.
© SEBA / Kolinplatz 15, 6300 Zug, Switzerland
Join us as we