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.

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).

• 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.

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

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.

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.