Switzerland: Blockchain
1. Please provide a high-level overview of the blockchain market in your jurisdiction. In what business or public sectors are you seeing blockchain or other distributed ledger technologies being adopted? What are the key applications of these technologies in your jurisdiction?
Distributed ledger technology is seeing an ever increasing – experimental and practical – application in various industry sectors in Switzerland. The financial sector (fintech and insurtech) is at the forefront of blockchain and smart contracts adoption, with various businesses engaging in services relating to crypto currencies and other digital assets (e.g. asset management, trading and exchange services, custody and storage solutions) as well as the tokenisation of securities such as shares and bonds. This is a highly regulated sector and therefore sound legal review and structuring is essential. However, there are also significant developments in other areas such as e-governance (e.g. e-voting systems, electronic signing), document authentication, legal services (legaltech) as well as (re)insurance services. Key players in Switzerland include, amongst others, Bitcoin Suisse, which offers prime brokerage, trading, lending and custody services. Amina and Sygnum are two players that hold full Swiss banking licences. Other providers hold securities firm licences and other licenses in the asset management space, such as Crypto Finance and Taurus. Further, various well-known blockchains and protocols are based or have operations in Switzerland.
The public sector in Switzerland closely follows and supports developments in the area of blockchain, and some public institutions incl. a cantonal government have already adopted blockchain-based solutions or accept payments in common cryptocurrencies.
In a further push to develop the Swiss digital asset ecosystem, two financial market infrastructures with a focus on DLT technology have been established with approval of the Swiss Financial Market Supervisory Authority FINMA in 2021: SIX Digital Exchange AG (licensed as a central securities depository) and its affiliate SDX Trading AG (licensed as a stock exchange).
2. To what extent are tokens and virtual assets in use in your jurisdiction? Please mention any notable success stories or failures of applications of these technologies.
The greater area around the cities of Zug and Zurich has been highly successful in attracting blockchain business and fostering the development of a significant ecosystem of start-ups and more mature companies focusing on the topic (dubbed the Swiss "Crypto Valley" and home, inter alia, to the crypto banks Amina and Sygnum as well as the veteran blockchain enterprise Bitcoin Suisse). The adoption has reached academia as well, with the University of Zurich and the ETH Zurich having been ranked as top universities in Blockchain education multiple times, and the development of a Blockchain Institute at the University of Luzern with nine full professorial positions supported by the regional government. In western Switzerland, the city of Geneva is a significant hub for blockchain projects as well (home, inter alia, of the asset tokenisation project Mt. Pelerin and the securities firm Taurus) and more recently, the region around the city of Lugano in the Italian-speaking part of Switzerland has also come to the forefront.
In an initial phase, the Crypto Valley became known as an attractive base for companies wishing to conduct initial coin offerings (ICOs), in some cases collecting significant amounts in funding (see question 11). The initial enthusiasm in the ICO market cooled down considerably after 2018, and blockchain business in Switzerland now appears to be defined by more mature projects, many of which are backed or launched by established financial institutions and technology companies. The new wave of blockchain start-ups in the financial sector more readily accepts and embraces regulation, with several projects having been granted a license by FINMA. After the collapse of FTX and the turbulences in the crypto industry in 2022/23, Swiss regulated and supervised entities offering crypto custody services have seen a significant inflow of funds, reflecting the industry's interest in safe and regulated custody solutions.
FINMA, the key supervisory authority of the Swiss financial sector, generally displays a positive attitude towards projects in the blockchain sector, while at the same time being committed to ensuring and enforcing compliance with existing Swiss financial regulation, not least in the field of money laundering and terrorist financing prevention. Publicised enforcement cases include e.g. the matter of envion AG, which was found by FINMA to have unlawfully accepted deposits amounting to over CHF 90 million from at least 37,000 investors in an ICO without the required licence, seriously violating supervisory law (FINMA media release, 27 March 2019), as well as the shutdown of providers of a "fake" crypto currency in late 2017 (FINMA media release, 19 September 2017) (see also question 18). In its 2018 Enforcement Report, FINMA noted that it had seen a sharp increase in the number of investigations into institutions suspected of operating without a licence and that it had been reviewing the regulatory classification of blockchain-based business models in particular (FINMA Enforcement Report 2018, p. 2). In its 2021 Annual Report, FINMA stated prominently that it will in particular focus on the compliance of crypto projects with applicable antimoney laundering regulation, specifically the so-called "travel rule" in connection with payments made on the blockchain (see also question 10).
3. To what extent has blockchain technology intersected with ESG (Environment, Social and Governance) outcomes or objectives in your jurisdiction?
Due to the high energy consumption of many blockchain architectures, some companies currently consider cryptocurrencies as non-sustainable and not compatible with their ESG strategy. Against this backdrop, projects that make use of technologies that are lower in energy consumption (e.g. due to the transition from a proof-ofwork to a proof-of-stake consensus mechanism) are on the rise (a prominent example is the 2022 Ethereum Merge). In response to two separate requests of a member of Swiss parliament made in 2019 (Interpellation 19.4137) and in 2021 (Postulate 21.3119) respectively, the Federal Council responded in each case that the energy consumption of Swiss blockchain systems cannot be quantified and the actual use of energy predominantly occurs abroad where the relevant computing infrastructure is located. While the Federal Council noted the existing initiatives to support energy-sufficient computing infrastructure, it also stated that the ongoing increase in energy consumption is only partially related to Swiss crypto companies or transactions made on the blockchain. The report "Blockchain energy consumption" issued on 27 September 2021 by the Swiss Federal Office of Energy found that proof-of-work mechanisms use the most energy, and that energy conservation measures may include encouraging the uptake of blockchains with alternative consensus mechanisms (e.g. proof-of-stake)
4. Please outline the principal legislation and the regulators most relevant to the use of blockchain technologies in your jurisdiction. In particular, is there any blockchain-specific legislation or are there any blockchain-specific regulatory frameworks in your jurisdiction, either now or envisaged in the short or mid-term?
On 1 August 2021, the Federal Act on the Adaption of Federal Law to Developments in the Technology of Distributed Electronic Registers ("DLT Act") came into force. The DLT Act is a framework act comprising of a bundle of amendments to various existing Swiss federal acts, including, e.g., the civil securities law, financial regulation, banking law, and insolvency law.
One of the key elements of the DLT Act is the creation of a legal basis for so-called ledger-based securities. These can fulfil the same functions as securities and enable a more legally sound tokenisation of assets. Further, the DLT Act introduced a regulatory licence category for DLT trading facilities (see also question 6).
Even with the DLT Act, there is no specific, comprehensive regulation exclusively addressing the use of blockchain technology or virtual currencies in Switzerland. However, Swiss law, and Swiss financial regulation in particular, is principle-based and technology-neutral, eschewing overly prescriptive or detailed rules. This has been perceived as conducive to innovation in the financial sector while at the same time creating a level playing field between traditional players and (potential) disruptors. On this basis, for all intents and purposes, blockchain-based financial services businesses have to comply with the same rules and regulations as brick-and-mortar or online institutions that do not make use of this technology. Depending on the specifics of a particular business model, in particular, Swiss regulation on banking, securities, AML, collective investment schemes, financial services, financial institutions, insurance, consumer credit or financial market infrastructures may apply. Furthermore, Swiss data protection legislation must be observed.
The main regulator in the Swiss financial market is the Swiss Financial Market Supervisory Authority FINMA, with certain regulatory and supervisory activities being exercised by recognised self-regulatory organisations ("SRO"). Some of the regulations issued by the SROs have been recognised by FINMA as minimum standards (e.g. in the area of money laundering prevention).
To provide some guidance regarding the application of financial market laws to blockchain-based activities, FINMA established guidelines for the legal qualification and treatment of virtual or digital currencies (the socalled "ICO Guidelines") on 16 February 2018. Later on 11 September 2019, FINMA issued a supplement to the ICO Guidelines to discuss the legal qualification of stable coins under Swiss law. Furthermore, FINMA issued guidelines on payments on the blockchain in its guidance 02/2019 dated 26 August 2019, and it issued a fact sheet on virtual currencies on 1 January 2020. The latter was recently replaced by the fact sheet "crypto assets" dated 31 May 2022.
5. What is the current attitude of the government and of regulators to the use of blockchain technology in your jurisdiction?
Representatives of the Swiss federal government have publicly stated that Switzerland intends to become a leading hub for research and business solutions based on blockchain technology. The Swiss parliament followed suit, adopting the proposed DLT Act unanimously. The DLT Act aims to ensure legal certainty and to foster innovation for blockchain-based projects (see also question 4). The positive attitude of the Swiss authorities is also shown by the willingness to support innovation in the crypto field. Innosuisse, the Swiss Agency for Innovation Promotion, is funding a four-year programme of the Swiss Blockchain Federation to generate ideas and start-ups in the Swiss blockchain industry. Further initiatives exist at the cantonal (i.e. state) level: The canton of Zurich has published a guide to determine in which cases the use of blockchain technology may be beneficial for the public administration. The canton of Jura uses a blockchain-based solution for the certification of excerpts from its debt enforcement registers. Other documents such as civil status documents will soon be integrated into this technology as well. In pursuing this, the canton hopes to strengthen the trust of citizens and businesses in the administration's online services. In the canton of Ticino, the city of Lugano is intending to become a leading Blockchain hub, with the city government having issued their own stablecoin in cooperation with Tether, which, in addition to other cryptocurrencies, may be used to pay for taxes and certain government services.
Also, the Swiss Financial Market Supervisory Authority FINMA has generally taken a welcoming attitude towards fintech and blockchain, even creating a specific fintech desk to address the needs of start-up companies and other players in that space. FINMA issued new guidelines (see also question 4) and revised several of its circulars, which specify its practice under applicable regulation, to render them technology-neutral (e.g. by removing requirements for documentation to be held in physical, written form or by specifically enabling technology-based solutions such as video and online identification for client onboarding purposes).
That said, FINMA is strict in applying Swiss financial regulation to traditional businesses and fintechs alike. Innovators should not expect preferred treatment based on the "newness" and expected benefits of their business models. A key focus of FINMA lies on the enforcement of Swiss anti-money laundering ("AML") regulation, in a bid to limit the risks of technology being abused for fraudulent or other undesirable purposes (see also questions 2 and 18).
In December 2023, FINMA published a guidance paper on Staking, clarifying the definition and regulatory qualification of the practice.
6. Are there any governmental or regulatory initiatives designed to facilitate or encourage the development and use of blockchain technology (for example, a regulatory sandbox or a central bank digital currency initiative)?
The DLT Act's key changes came into force on 1 August 2021. The DLT Act is a framework act that introduces amendments to several existing Federal Acts, including the following:
Amendments to Swiss civil securities legislation in the Swiss Code of Obligations ("CO") to introduce a new category of ledger-based securities (Registerwertrechte) that allow the digitisation or tokenisation of assets (rights) such as shares, bonds and other financial instruments, as well as for the transfer of such instruments. Ledger-based securities are uncertificated value rights that can serve the same functions as traditional paper securities or centrally registered bookentry securities (Bucheffekten), enabling e.g. the issuance and transfer of shares in a company based on a decentralised electronic ledger. The new articles 973d et seq. CO provide for a non-deterministic set of rules on ledger-based securities and their legal characteristics, outlining the principles of their establishment, transfer, pledge and cancellation. The provisions of the CO on ledger-based securities protect the good faith of persons relying on the register entry (e.g. the debtor of a claim or the acquirer of a share in the form of a ledger-based security, see article 973e CO) in a fashion similar to traditional securities, while simple value rights do not offer such protection. The technical details of the implementation of an eligible register and ledger-based securities in practice are left to the private sector.
Amendments to Swiss insolvency rules in the Federal Law on Debt Collection and Bankruptcy ("DEBA") to provide for specific segregation rights regarding cryptobased assets in the bankruptcy of a custodian as well as the segregation of (access) data. The new article 242a DEBA in particular provides a legal basis for segregation in scenarios where crypto-based assets are held in collective storage, provided it is possible to identify which part belongs to the specific claimant. These changes to the DEBA have also been reflected in amendments to the provisions of the Federal Banking Act ("BankA") on custody assets (articles 16 and 37d BankA).
Introduction of a new stand-alone licence type under the FMIA for so-called "DLT Trading Facilities" (DLTHandelssysteme), i.e. professionally operated venues for the multilateral trading in standardised DLT securities. Differing from the licences for traditional trading venues such as stock exchanges and multilateral trading facilities, the DLT Trading Facility licence type is intended to be a unified licence enabling its holder to also provide certain post-trading services normally reserved to other financial market infrastructures, notably central custody/depository services as well as clearing and settlement. Another distinction vis-à-vis traditional trading venues is that the DLT Trading Facility licence type would allow for the admission of private individuals or unregulated legal entities to trading instead of regulated participants only.
The Swiss National Bank announced in late 2020 that it successfully conducted two proofs of concepts for the settlement of tokenized assets in central bank money on a distributed ledger as part of project Helvetia, in collaboration with the International Bank for International Settlement's Innovation Hubs and SIX Swiss Exchange (the operator of the financial market infrastructure). In particular, the first part involved the issuance of a socalled "central bank digital currency" (CBDC) for use by financial intermediaries, and in the second part, a DLT platform was connected to the existing payment systems. The project was extended with a Phase 2, which added commercial banks to the experiment, added the CBDC into the core banking system of the central bank and commercial banks, and ran transactions from end to end. The experiment confirmed the operational feasibility of settling transactions on a tokenised asset platform.
Separately, the Swiss financial regulatory framework provides for a so-called fintech licence (formally, fintech licence holders are referred to as "persons pursuant to article 1b BankA"). Holders of a fintech licence are allowed to accept and hold (and to solicit the acceptance and holding of) deposits from the public, on a professional basis, for amounts of up to CHF 100 million (higher ceiling amounts can be approved by FINMA in the individual case or might be introduced by the Federal Council for general application from time to time) and/or to hold certain crypto assets in non-segregated custody. The key limitation of the fintech licence is that holders are not allowed to engage in commercial banking business with maturity transformation. While the licence is available to all kinds of businesses that are required to hold third party funds for extended periods, it was mainly created to enable innovative business models in the financial market, whether based on blockchain technology or not. Its introduction marked the completion of a three-pillar fintech programme initiated by the Swiss Federal Council in November 2016. The two previously implemented pillars, which were put into effect on 1 August 2017, referred to (i) the extension of the maximum holding period for third party funds in so-called settlement accounts (i.e. the time period during which such funds do not yet qualify as deposits) from seven days to 60 days and (ii) the establishment of a regulatory sandbox for innovative companies outside of prudential supervision (whereby companies can accept deposits of up to CHF 1 million without a banking or fintech license, subject to certain conditions). As per September 2023, only five institutions are in possession of a fintech licence (FINMA website). Given the limited success of this licence type, it might be expected that the regime could be revised at some point.
7. Have there been any recent governmental or regulatory reviews or consultations concerning blockchain technology in your jurisdiction and, if so, what are the key takeaways from these?
At the level of the Swiss federal government, cryptocurrencies, their legal qualification and potential risks were first specifically addressed on 25 June 2014, on which date the Federal Council issued a report in response to two separate postulates by members of the Swiss parliament. This was followed up in 2018, when the federal government conducted a more in-depth study of blockchain technology and its current and future applications, in particular in the financial sector. The results of the study were compiled in a report of the Federal Council published on 14 December 2018 under the title "Legal basis for distributed ledger technology and blockchain in Switzerland".
The report was prepared on the basis of certain principles and convictions, in particular that (i) policymakers should merely provide a framework conducive to innovation, while the preferences of the market and society in general should determine which technologies will prevail; (ii) Switzerland should not fundamentally call into question its proven and balanced legal framework, but should swiftly make targeted adjustments as needed where there are gaps or obstacles with regard to blockchain applications; (iii) Switzerland should continue to pursue a principle-based and technology-neutral legislative and regulatory approach, but should allow exceptions if necessary; (iv) Switzerland should position itself as an attractive location for blockchain businesses, but not tolerate any use of innovative technologies for fraud or circumvention of the regulatory framework; (v) Swiss authorities should position themselves as open towards new technologies and innovations and engage in an ongoing dialogue with the industry.
In the report, the Federal Council identified a need for specific amendments to certain federal laws in order to enhance legal certainty and remove hurdles for practical applications of blockchain technology in the financial sector on the one hand, and, on the other hand, limit the risks of technology being abused for fraudulent or other undesirable purposes. These findings formed the basis for the DLT Act (see question 6).
Following up on the above, the Federal Council issued a report specific to the financial sector in 2022 called "Digital Finance: Areas of action 2022+", instructing the Federal Department of Finance to review and examine the legal and supervisory framework with regard to new players and forms of service.
8. Has any official guidance concerning the use of blockchain technology been published in your jurisdiction?
In recent years, FINMA has issued several pieces of guidance regarding the use of blockchain in financial services, outlining FINMA's interpretation of the law when reviewing business models relating to digital assets or otherwise making use of blockchain technology. Such sources provide further guidelines to interested parties wishing to submit their project for review by FINMA prior to launch, often with the goal of being provided with a socalled "no action letter" or to ascertain applicable licence requirements.
In particular, relevant guidance issued by FINMA includes the FINMA guidance 04/2017 on the regulatory treatment of initial coin offerings (ICOs) dated 29 September 2017, the FINMA guidelines for enquiries regarding the regulatory framework for ICOs dated 16 February 2018, an update and supplement to said guidelines focusing on issuances of "stable coins" dated 11 September 2019 as well the FINMA guidance 02/2019 regarding payments on the blockchain dated 26 August 2019. Furthermore, FINMA noted in a fact sheet on virtual currencies on 1 January 2020 that financial market laws, e.g. mainly Swiss banking and AML laws, may apply to blockchainbased projects and that FINMA will launch investigations if it receives specific information that a project is being carried out without a required authorisation. This fact sheet was replaced by the fact sheet "crypto assets" dated 31 May 2022, but the content stayed broadly similar. FINMA also uses this fact sheet format to warn investors about the risks of crypto assets.
The various guidance papers published by FINMA generally emphasise the technology-neutral and principle-based nature of Swiss financial regulation. This provides leeway for the realisation of innovative business models, but requires that projects are reviewed and evaluated on a case-by-case basis, often in a dialogue with the regulator. As far as projects relate to the issuance, trading, custody or other activities relating to blockchain tokens, FINMA has provided a general classification into three categories – taking a substanceover-form approach – to enable a structured analysis of the relevant business model under applicable financial regulation. Specifically, FINMA distinguishes between payment tokens ("pure" cryptocurrencies), utility tokens and asset tokens, acknowledging that hybrid forms and transformations from one category into another along the timeline of a blockchain-based project are possible.
In addition to direct guidance, the FINMA annual reports as well as the FINMA enforcement reportings, which include inter alia anonymised summaries of key court rulings and enforcement actions published online (until 2018, FINMA published an annual enforcement report) are sources of indirect guidance in that they provide an overview of FINMA's activities in the area of blockchain financial services and in particular summaries of enforcement proceedings. Likewise, the reports issued by the Swiss federal government on cryptocurrencies and the use of blockchain technology in the financial sector provide guidance on the interpretation and development of the Swiss legal framework in this regard (see question 7).
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