Swiss blockchain and cryptocurrency regulation

As blockchain and cryptocurrencies are developing globally, regulation has begun to follow suit in most developed countries. One of the first “crypto friendly” countries is Switzerland who began to build a framework for these emerging technologies. This article will provide a quick overview of the regulatory landscape in Switzerland.

In the past few years, Switzerland has became known as a “crypto nation”. For such a small country, the blockchain space has become considerably big. A lot of blockchain related startups and companies have chosen to establish themselves, legally and physically, here in Switzerland. This is evident by perhaps the most well known initial coin offering, Ethereum. The Ethereum Foundation incorporated in Zug for its ICO in 2014 which was the biggest ICO at the time. One can only imagine the challenges this raised for the Swiss authorities who had to keep up with the new technology and the new paradigms that were being established within the Swiss borders.

As it has transpired in other major industries, innovation arrives first and only then laws are created second. What is surprising in the Swiss example is that the regulation of cryptocurrencies and blockchain began in 2014 with the publication of the report on virtual currencies by the Federal Council. The document is an overview of some fundamental aspects of: economic significance, legal treatment, and risks related to cryptocurrencies. However, in 2014 it was still believed that virtual currencies were a marginal phenomenon so the Federal Council concluded that there was no need for legislative measures to be taken.

Following these initial steps, in February 2017 (the year of the ICO boom in Switzerland), the Swiss Federal Council initiated the consultation on new Fintech regulations. It is intended to initiate the regulation of the Fintech sector and other companies that provide financial services outside of regular banking activities. The first regulations came into force on the August 1st 2017 with the amendment of banking ordinance that consists of three supplementary elements:

• Extension of a grace period for settlement accounts (sixty days instead of only 7 days);
• The creation of an innovation area that is exempt from a bank license requirement (Sandbox);
• The creation of a new type of license to promote innovation in Switzerland (a less rigid type of bank license).

These regulations work alongside the FINMA Circular 08/3 for public deposits. This important amendment enables companies to try out their business model before they are required to obtain authorization.

The next step began in early 2018 when the State Secretariat for International Financial Matters (SIF) established a blockchain/ICO working group in collaboration with the Federal Office of Justice (FOJ). They were charged to review all legal frameworks and identify any need for action with FINMA and the blockchain sector itself working closely together. In particular, a need for action was identified within civil law to deal with the: transfer of tokens, their treatment under insolvency law and the creation of new opportunities in the area of financial market infrastructure. The working group will report to the Federal Council by the end of 2018.

As described in the previous article about ICO regulations, FINMA also did a tremendous amount of work to clarify the current blockchain and cryptocurrency regulation. FINMA worked on amending its guidelines, setting up its FinTech department and revising its Circular 16/7 on video and online identification.

In conclusion; the legislative framework for the blockchain industry that is being established in Switzerland has been underway since 2014 and has been gaining momentum over the past two years thanks to consumer interest in the area. This provides a more stable economic region for startups such as RigoBlock and it removes the uncertainties for the contributors in ICOs as an additional benefit.

A further merit of the Swiss law is that due to its principal based approach compared to its European counterparts is that it is more flexible and adaptable as technology progresses.

It is also important to underline that if any country implements high levels of regulations on new technologies, they tend to slow down development.

However, the Swiss authorities have taken this into account, per the recent amendments they have essentially deregulated some aspects of Banking Act and Banking Ordinance to allow blockchain to flourish.

For us at RigoBlock, it was crucial we understood the legal framework of the country we are doing business in, as a well-chosen home is a key to success.

Disclaimer: This article does not constitute legal advice. As a co-founder of RigoBlock and following my research on the regulatory framework of blockchain and cryptocurrencies in Switzerland, I wanted to share the results which have been collected together in this article.