Swiss on a roll to regulate crypto, blockchain space
The health and sustainability of the crypto and blockchain space can be measured by the jobs market, as well as the development of education offerings to ensure projects and start-ups have a diverse pool of blockchain talent to build their teams.
While these endeavours have enhanced credibility, the real showcase of blockchain’s future viability is reflected in the wave of momentum on the regulatory front over the past year, with governments across the world making inroads in defining their respective approaches to regulation.
Developing regulation for a sustainable ecosystem takes time, and involves striking the right balance between clear rules and flexible implementation.
The Swiss jurisdiction is reaping the benefits of years of methodical work in crafting regulation that nurtures innovation while ensuring the highest standards in security and transparency.
Switzerland’s willingness to evolve with the needs of industry was underlined in December last year, when the State Secretariat for International Financial Matters (SIF) report detailed the country’s regulatory framework regarding cryptocurrencies and blockchain technology.
The Federal Council’s report, Legal framework for DLT and blockchain in Switzerland, stated the opinion and intention of the executive body of the Swiss government.
The content of the report also reaffirmed the primacy of the Swiss jurisdiction when it comes to promoting a sustainable crypto and blockchain economy.
That is not to say that significant progress hasn’t been made elsewhere.
Assessing the global landscape, it is clear that regulation is becoming a top priority for governments, with many facilitating collaborations with key industry leaders in their jurisdictions to ensure any framework is at least in part informed by the needs of industry
We are seeing a marked decrease in the outright banning of crypto and a sustained awareness of the risks involved.
The landscape remains diverse among the countries, in terms of regulatory depth and timing.
It is encouraging to see regional bodies beginning to take decisive action to put legislation into effect. In the US, the Securities and Exchange Commission (SEC) identified cryptocurrencies as a main focus this year for the SEC’s Office of Compliance Inspections and Examinations (OCIE).
Stateside innovation around blockchain technology looks to be taking shape, and this month, New York state announced the creation of a crypto task force with the goal of submitting legislative proposals by December next year. The task force will focus on cryptocurrencies, other forms of digital currency, and the underlying blockchain technology.
Regulatory advances in the Asia-Pacific region have seen Singapore and Japan emerge at the head of the pack, while South Korea is reconsidering its earlier position.
In July last year, the South Korean Financial Services Commission (FSC) launched the Financial Innovation Bureau, a division dedicated to develop policy initiatives around financial innovation, with a sharp focus on cryptocurrencies.
Last month, the country’s National Assembly passed legislation geared towards laying the legal foundation to introduce a regulatory sandbox for innovative financial services.
The Financial Innovation Support Act will come into force in March, and will enable fintech firms to test their new services with regulatory exemptions for a certain period of time.
These developments should be celebrated by the global blockchain and crypto community. Together, we are accelerating the research and implementation of distributed ledger technology.
However, there is a reason Switzerland has hosted 15 percent of the world’s top 100 ICOs, and recent efforts represent significant steps towards consolidating its position as the premier crypto nation.
In December 2018, along with the report on DLT regulation, the Swiss Federal Council, with FINMA, implemented a Fintech licence, aiming to create an adequate, technology-neutral regulatory framework for any business that needs to accept deposits from the public without engaging in typical commercial banking activities.
The council report articulates Switzerland’s unique approach to regulation, distinguishing itself from competitive jurisdictions such as Malta and Lichtenstein. Switzerland does not foresee the need to create a new law dedicated to blockchain, but intends to “surgically” adjust the existing legal framework as much as necessary to support the development of the Swiss blockchain ecosystem.
Thus, Switzerland considers the blockchain and crypto ecosystem an integral part of the broader development of its economy and not as a special sector in need of a dedicated legislative attention.
The targeted adjustments to the current laws envisaged by the council are quite pointed, and demonstrate the ongoing efforts to evolve with the needs of industry.
Adjustments include implementing a legally secure transfer of uncertified securities by means of entries in decentralised registers, providing unambiguous rules regarding the segregation of crypto-based assets from a bankrupt estate, and introducing a new financial markets infrastructure authorisation category for both retail and regulated participants.
. With these targets, Switzerland makes a very effective leap forward compared to other jurisdictions in terms of crypto business conditions, without upending a generally harmonious legislative framework which has been perfected over time.
The report also takes a firm stance on key risks such as anti-money laundering (AML), counter-terrorist financing (CFT) and blockchain-specific operational risks while giving expression to Swiss commitment to lead and align to the international (FATF) effort and highlight the key AML-CFT challenges.
On the operational risk score, the report emphasises the dependence of data availability and integrity on security standards at each node on the blockchain, data management and protection issues, as well as the link between effective governance of DLT systems and the quality of encryption technology which is dynamic and human-dependent.
Mattia Rattaggi is chairperson of the regulatory and policy working group of the Crypto Valley Association.