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Alexander Vogel
Reto Luthiger
The Swiss Federal Council recently released a comprehensive report on the embedding of the Blockchain technology into the Swiss legal framework: This report shall guide the way to bringing the legal certainty for the Swiss Blockchain ecosystem to the next level. But the reports shows also that Switzerland (i) is open for new technologies, (ii) has already very well established legal framework for blockchain technology and business models, (iii) wants even to improve its leading positions in innovations, and (iv), on the other side, does not accept misuses of such new technologies. With this report, the Swiss government confirms its established approach in applying Switzerland’s existing and principle-based laws in a technology neutral way. However, it also acknowledges that the existing legal framework will require punctual amendments to solve specific issues.
Qualification and transfer of tokens
From a civil law perspective, the report differentiates between tokens representing a value within the blockchain context (native tokens such as cryptocurrencies) and tokens representing a legal position (such as claims, membership rights, rights in rem). The first ones are factual intangible assets which are not subject to any legal transfer requirements. With regard to the latter, the Federal Council intends to amend and further develop the Swiss securities law: an entry on a blockchain/DLT can fulfil the principle of publicity in a similar way as the possession of securities so that such entries should also have a similar legal effect. This means also that rights which cannot be certificated in securities based on the existing legal framework, such as ownership of chattel (Fahrnis) or many corporate membership rights, are excluded from such way of transfer – except of constellations of tiered possession.
From a financial market law perspective, the Federal Council confirms the approach of three token categories – payment, utility and asset tokens – as established by the guidelines of the Swiss regulator FINMA dated 16 February 2018.
Tokens in insolvency proceedings
The report states that there is much uncertainty in the existing law about the segregation of tokens in bankruptcy or similar insolvency proceedings. However, it is of crucial importance whether the assets in the domain of the bankrupt party can be assigned individually to the entitled party or whether the claim to return – in analogy to property law – has been voided by mixing the assets at issue with other assets and thus transformed into a contractual claim. Therefore, if private keys are hold exclusively by the wallet provider, a distinction must be made as to how crypto assets are allocated by the wallet provider: are they allocated to separate wallets for each client or are they hold in so-called omnibus-wallets.
This clarifies also that custodian wallet providers/storage providers will generally need neither a bank nor a fintech license if they maintain a separate wallet for each client, even though the custodian has access to the respective private keys.
As part of a planned consultation, the Federal Council will propose a provision in the Swiss bankruptcy code setting out a right to the release of data in the event of insolvency, including a claim to the transfer of crypto assets and it will also review a possible new provision applicable to bank insolvency proceedings regarding the segregation of crypto assets.
New license for token trading platforms
As an exception of the technology neutral approach, the Swiss government considers introducing a new technology-specific license for token trading platforms under the Swiss Financial Market Infrastructure Act (FMIA) which can be summarized (undoubtedly simplified) as a mix of multilateral trading facilities (MTFs), organized trading facilities (OTFs) and fully digital processes. This will allow the trading of payment, utility and asset tokens multilaterally, without any discretionary elements, with fully digital processes and direct access also for retail clients without the having a banking or fintech license at the same time. As a real novelty, such new license shall allow not only to provide for matching services, but also all post-trading services such as transaction settlement because blockchain/DLT allows trading and settlement to take place in real time and in the same moment of time.
The L-QIF – a new Swiss fund product
The Federal Council instructed the Federal Finance Department (FDF) already on 5 September 2018 to prepare a consultation on amending the Swiss Collective Investment Schemes Act (CISA) by mid-2019 in order to allow for a new category of funds (so-called limited qualified investment funds; L-QIFs). Such L-QIFs will not be subject to approval by the Swiss regulator FINMA and could therefore be placed on the market much more quickly and more cost-effectively. The distribution of L-QIFs will be restricted to qualified investors. Currently, the FDF is elaborating on the eligible asset classes for such L-QIFs.
New fintech license
Since 1 January 2019, companies (such as crowd lending platforms, trading platforms, payment service providers) that operate beyond the core characteristic for banks – being the interest margin business – will be able to accept public funds of up to a maximum of CHF 100 million on a professional basis provided that they neither invest nor pay interest on these funds. The Federal Council set into force an amendment to the Swiss Banking Act (BA) and the Swiss Banking Ordinance (BO) to promote innovation in the fintech area already during its meeting on 30 November 2018. The Swiss regulator FINMA published respective amendments to its AML-Ordinance as well as guidelines for the new fintech license.
The new fintech license has, inter alia, the following characteristics:
- Minimum capital: 3% of the collected public deposits, but at least CHF 300,000;
- Not subject to complex capital and liquidity requirements of banks;
- Substantially reduced accounting and auditing requirements compared to banks;
- Not in the scope of the deposit protection system;
- Information duties towards the clients;
- Registered office and management to be in Switzerland.
Insurance companies and financial services
The Federal Council does not see any need for action with regard to the legal setting for insurance companies and the new Swiss Financial Services Act (FinSA) entering into force on 1 January 2020.
AML and terrorist financing
The Report states that the existing Swiss Anti-Money Laundering Act (AMLA) is already drafted in a technology neutral way and that the scope of the AMLA is compared to other international AML-regulations already very extensive with regard to crypto business models. In particular, The Federal Council does not see any need to apply AML-regulations to non-custody wallet providers. However, he intends to stress out more explicitly the already existing duty of decentralised trading platforms to be AML-regulated.
Taxes
The Federal Finance Department will carry out in 2019 an in-depth analysis regarding possible issues of new technologies and transforming business models with VAT, stamp duties, withholding tax, profit tax, income tax and wealth tax.
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