Building blocks

Switzerland has displayed a progressive attitude towards blockchain and distributed ledger technology (DLT). Government, lawmakers and the Swiss Financial Market Supervisory Authority (FINMA) explicitly recognise the potential for the financial services industry and the economy at large.

Crypto-based assets and tokens

Under Swiss law, there is no definition of ‘virtual currency’. However, the revised banking rules equate ‘crypto-based assets’ to assets that were issued with the primary objective to substantially serve as a payment instrument for the acquisition of goods or services or an instrument for money or value transfers.[1] Moreover, FINMA distinguishes between the following three types of tokens (while acknowledging that ‘hybrid tokens’ may fall into more than one of these categories):[2]

• Payment tokens (synonymous with ‘cryptocurrencies’) are used as a means of payment for acquiring goods or services or as a means of money or value transfer (e.g., Bitcoin, Ethereum).
• Utility tokens are intended to provide access digitally to an application through a DLT-based infrastructure.
• Asset tokens represent assets such as a debt or an equity claim against the issuer (e.g., the promise of a share in future company earnings or future capital flows).

No cryptocurrency regulation

Switzerland does not have specific rules on cryptocurrencies. Although it refuses to consider them legal tender, the Swiss National Bank remains open to potential uses of virtual money,[3] as exemplified in the canton of Zug where the tax authorities have accepted Bitcoin and Ethereum for tax payments since 2021.[4]

Notwithstanding the absence of regulations, the offer and sale of tokens may be subject to certain rules in the event that they constitute securities within the meaning of Swiss law. To determine if such is the case, each token must undergo an assessment on a case-by-case basis. In this context, FINMA has adopted the following overall approach: unlike cryptocurrencies, utility tokens (unless their only purpose is to confer digital access rights to an application), asset tokens and stablecoins[5] should generally be treated as securities.[6]

In cases where tokens qualify as securities, the related sales activities may give rise to the following obligations:

• Swiss securities firm licence requirements under the Financial Institutions Act (FinIA);
• the Swiss trading platform regulations under the Financial Market Infrastructure Act (FinMIA); and
• Swiss prospectus requirements and further rules in relation to financial services, pursuant to the Financial Services Act.

DLT-Securities

In 2021, the Federal Act on the Adaptation of Federal Law to Developments in Distributed Ledger Technology introduced DLT-Securities as a new type of negotiable securities. They permit the tokenisation of rights, claims and financial tools (bonds, shares, derivatives, etc). These instruments allow for the issuance and transfer of rights directly on a DLT-based register. Such rights include contractual claims, especially those based on debt instruments, and certain membership rights (e.g., shares in a company).

DLT-Securities require a registration agreement between two parties: e.g., the issuer of a financial instrument (as debtor) and the holders of the financial instrument (as creditors). Under such contract, the rights at issue are entered into a so-called ‘register of uncertificated securities’ through which they are subsequently asserted and transferred.

Anti-money laundering

In Switzerland, both issuing and trading virtual currencies are subject to anti-money laundering (AML) rules. In this regard, an essential criterion is whether the person engaging in such activities constitutes a financial intermediary within the meaning of the Swiss Anti-Money Laundering Act. Financial intermediaries may either get affiliated with a self-regulatory organisation or be directly supervised by FINMA for AML purposes.

Depending on the nature of the asset and business activity, persons are required to obtain the following licences from FINMA:

• a banking licence for providers of custody or trading activities with payment tokens and providers holding payment tokens from several clients in their wallets; and
• a fintech licence for companies accepting public deposits of up to CHF100 million or crypto-based assets, provided that these are not invested and no interest is paid on them.

For business models that involve securities trading, companies may also be required to get authorised under the FinIA or the FinMIA. Companies using DLT must obtain a licence as a DLT trading facility if their purpose is simultaneous exchange of bids between several participants and the conclusion of contracts based on non-discretionary rules and either:

• admits participants in accordance with FinMIA (‘retail customers’);
• holds DLT-Securities in central custody based on uniform rules and procedures; or
• clears and settles transactions in DLT-Securities based on uniform rules and procedures.[7]