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Switzerland Introduces New Legislation Subjecting Secondary DLT Markets

November 26, 2019
Ross Peili

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Switzerland Introduces New Legislation Subjecting Secondary DLT Markets

The country better known for its chocolate, watches, pens, and well, international banking and vault services, Switzerland is working on a new generation of DLT regulations in order to keep its reputation among the most blockchain-friendly countries in the world. 

According to an announcement made by policy research firm PwC, Switzerland will be focusing its new set of rules on secondary markets, or simply brokers of primary market DLT service providers, amid to the rapid growth in the sector in the country.

The new legislation is set to be activated starting on January 1st, next year and from what we know so far, it will be targeting and affecting legal DLT providers that operate with security tokens. 






Swiss financial regulator FINMA had previously subjected many ICOs during the period 2017-18 as “Securities” and not as digital currencies or other virtual assets, as observed by other European financial authorities.

One could say that this chronological order for these regulations is well-crafted and strategized years prior to the crypto hype that occurred in 2017, and therefore creating new rules specifically for security tokens in the present would make absolute sense. FINMA was among the first financial watchdogs to regulate cryptocurrencies on a national scale as early as 2014.  

What changes for Swiss blockchain businesses since 2020?

Besides obvious and self-explanatory rules meant to affect every financial institution in Switzerland, and regardless of their affiliation to distributed ledger technologies, some of the newly introduced rules include, but are not limited to:

DLT uncertificated securities. Essentially a form of uncertificated transferable securities that utilize DLT to electronically register the issuance of a ‘security token’. According to the new law, companies utilizing this process must comply with transparency, ‘certain data integrity’, and government-approved IT infrastructure.

DLT trading systems. DLT-based securities are on their own turn subject to a new legislative category dubbed as DLT trading venues, basically DLT exchanges, or DLT trading facilities, which allow for multilateral exchange of DLT securities. These systems must follow similar regulations to traditional stock exchanges and provide clear data regarding the operators, clients, and licensed entities involved in a transaction. Finally, DLT trading systems are subject to all active anti-money-laundering (AML) laws. 

Organized Trading Facilities. OTFs will allow both multilateral and bilateral discrete or not trading to be operated by any established investment firm engaging in short term trading on own account independent of the own trading volume. The current 5bn annual turnover for trading with own accounts will not apply for OTFs’ trading. Basically, OTFs would be allowed to act as a banking institution, trading your holdings as they please, as long as they have the collateral to back it, in case of a loss.  

Cryptocurrencies. Last but not least, Crypto-assets including security tokens, cryptocurrencies, and other digital assets held in custody with a Swiss bank that can be allocated at any time to third-party customers will profit in case of a bankruptcy, similar to other physical assets held in custody by the respective bank. For example, if you have deposited 10 BTC with a Swiss bank, and they somehow ‘lose’ it, they are obligated to pay you back in terms of BTC regardless of its current market price. 

Verdict

Switzerland was always the epicenter of monetary operations, and it is not ready to give up to the long-held title as clearly indicated by this move. The new set of clear-cut regulations will help secondary markets in the DLT sector operate under a legal framework in the country, and hopefully, it will inspire more countries to follow a similar approach.

Read More: 87-Year Old Swiss Bank Maerki Baumann Embraces Cryptocurrencies After Clients’ Increased Demand

Cryptocurrencies and digital assets are treated as property, currency, and securities in Switzerland, depending on the scenario, making sure that the respective operators of these funds, and/or owners of the tokens are legally covered from all sides, while at the same time, it gives an extra pair of eyes to government bodies to monitor suspicious monetary activities that might be using digital assets as a means of exchange.