Switzerland is playing a pioneering role in blockchain regulation

One year ago, Switzerland’s blockchain legislation came into effect. The country is an international pioneer in this regard. So, what are the lessons to be learned now that a year has passed?

The distributed ledger technology such as the blockchain has great potential especially for the financial sector.

It allows encrypted, decentralized storage and transfer of value and thus enables an end-to-end value chain for digital assets.

This promises innovative applications and greater efficiency in a fully digitized financial industry.

Switzerland is one of the largest financial centers and also one of the most advanced countries in the fintech area.

This provided the right basis for Switzerland to be one of the early adopters of blockchain technology in the financial sector.

Currently, Switzerland has over 1,000 companies in the fintech and blockchain sector, encompassing a wide range of companies from early stage startups to fully regulated banks with digital-asset-only business models.

Some of these Swiss companies will mark their presence at the upcoming Singapore Fintech Festival 2022.

The country is also home to industry pioneers such as the Ethereum Foundation which was established in Switzerland in 2014.

Among other success factors, Switzerland’s innovation-friendly framework conditions and legal certainty have allowed a dynamic blockchain ecosystem to develop while preserving the financial center’s integrity and stability.

The integrity of the financial center is a key priority

For Switzerland, the integrity and reputation of the financial center is of utmost importance.

Switzerland has amended its anti-money laundering legislation to explicitly include cryptocurrencies as early as 2015.

Further changes have been implemented since then to continuously ensure that the same rules for cryptocurrencies apply to traditional monetary assets and that the latest developments in the digital asset space are accounted for.

It is also important to cooperate at international level to combat money laundering and the financing of terrorism.

Switzerland thus actively contributes to the Financial Action Task Force (FATF) and has fully implemented its standards on crypto-assets and beyond wherever applicable.

In addition, Switzerland is actively working for a rapid international implementation of the FATF standards so that loopholes and havens for illegal activities can be avoided.

Continued efforts are required to ensure the stability of the financial centre

Switzerland actively participates in the work of relevant international bodies, such as the Financial Stability Board (FSB).

The FSB’s latest assessment found that digital assets do not yet pose a significant risk to financial stability, but may do so in the future given the rapidly developing markets for digital assets.

Based on this assessment, the FSB proposed a framework for international regulation of digital asset activities this month that allows national lawmakers and regulators to take adequate measures to reduce risk and ensure stability.

Swiss legal framework provides legal certainty beyond cryptocurrencies

During 2021, the Swiss blockchain legislation came into effect. The aim of this legislative package, which was approved unanimously by the Swiss parliament, is to provide legal certainty in an environment where technology is developing rapidly.

Specifically, it strengthens legal certainty for blockchain applications in the financial sector beyond cryptocurrencies in three ways.

First, it creates a clear legal basis for the issuance and transfer of rights such as shares or bonds on a distributed ledger (e.g. blockchain).

Second, it protects customers in an insolvency by offering segregation of digital assets in the event of bankruptcy.

Finally, it introduces the DLT Trading Facility as a new authorization category for multilateral trading of securities issued on a distributed ledger in a regulated environment.

Blockchain legislation has strengthened Switzerland’s international position as a pioneering place for fintech as a whole and for the development of digital assets.

This not only benefits companies dealing with digital assets, the financial center as a whole can also acquire a specific niche in the future.

The Swiss government remains committed to working, in an ongoing open dialogue with market players, on a legal framework that allows an optimal use of the opportunities offered by this technology, while preserving financial stability and keeping associated risks to a minimum.

Find out more about the Swiss financial center on the finance.swiss website.