The Federal Council initiated the consultations on the adoption of federal law to developments in Distributed Ledger Technology (DLT). That decision emerged during the council’s meeting held on 22 March 2019 in Bern. It aims to enhance Blockchain/DLT framework conditions by removing hurdles for DLT-based applications, increasing legal certainty, and minimizing misuse risks.
Moreover, the new draft serves to augment the regulatory framework for DLT in Switzerland focusing primarily on the financial sector. The consultation between the council and the stakeholders may last until the end of June 2019.
The Legal Framework
The Federal Council adopted a legal framework report in December 2018. That report aimed to offer guidance on how to introduce blockchain and DLT in the financial sector seamlessly. It highlighted that it wants to develop excellent framework conditions to enable Switzerland to establish itself in the fintech sector. If the proposals in the report work, the country may become a leading, sustainable, and innovative location for DLT and fintech companies.
The council wants to constantly fight abuses and guarantee the integrity and excellent reputation of Switzerland as a financial hub. This report reveals that the Swiss legal framework is already perfect to deal with new technologies that include DLT. However, selective action is necessary.
According to the consultation draft announced in December 2018, the Federal Council proposed the following adjustments:
- In the Federal Law on Debt Collection and Bankruptcy, the isolation of crypto-based assets in the case of bankruptcy should be specifically regulated. That will increase legal certainty.
- It should also be possible in the future to get a license to operate an organised trading business as a securities firm. That will need an adaptation of the future Financial Institutions Act.
- According to the Swiss Code of Obligations, the prospect of electronic registration of rights that can warrant the functions of flexible securities should be created. The creation intends to boost legal certainty in the transfer of all the DLT-based assets.
- Based on the financial market infrastructure law, a fresh authorisation category for so-called “DLT trading facilities” must be created. These will offer regulated financial market players and private customers’ services in the sectors of clearing, trading, settlement and custody with the Distributed Ledger Technology-based assets.
The Federal Council sees a need for more specific definitions of current practice to combat money laundering activities. Nonetheless, these amendments at the ordinance level do not play any role in the latest consultation draft. They will integrate into the scheduled amendment targeting the Anti-Money Laundering Ordinance. The tweaks feature in the ongoing revision of the Anti-Money Laundering Act.
The Council went on to seek clarification on whether legislation in the prevention of money laundering and terrorist financing should be adapted. They sought the clarification with regard to crowd-donating and crowd-supporting platforms. Currently, only modest donations arise from these platforms.
Additionally, other jurisdictions currently refrain from regulating such activities. The Federal Council also believes that it would be currently unfair to subject crowd-supporting and crowd-donating platforms to the Anti-Money Laundering Act. It will continue to monitor all developments and subject such platforms to the Act if necessary.
Consequently, the move to enhance Blockchain/DLT framework conditions makes Switzerland an excellent destination for blockchain and crypto investors.