A report based on the analysis conducted by a blockchain working group that was appointed earlier this year has been adopted by the collective head of state and government of Switzerland, the Federal Council.
Among other things the report has concluded that the legal framework of Switzerland can handle new technologies such as blockchain with only selective adjustments being made and not fundamental ones.
The Federal Council currently sees no fundamental issues regarding financial market law that specifically concern blockchain/DLT-based applications and would require fundamental adjustments. Swiss financial market law is generally technology-neutral and able to deal with new technologies.
The individual areas which need targeted adjustments according to Switzerland’s governing body include banking law, civil law, insolvency law, and anti-money laundering law. In civil law, the Federal Council has recommended that the legal certainty involving the transfer of rights via digital registers be increased.
With regards to financial market infrastructure law, the Federal Council has called for a new and flexible authorization category specifically focusing on blockchain-based financial market infrastructures to be devised. The governing body of Switzerland stated various reasons for this including the specific challenges that blockchain-based business models face:
…such challenges exist namely in the areas of trading tokens via central trading platforms and in the application of financial market law to decentralised financial market “infrastructures” … Hence, it seems more expedient to address the challenges in financial market infrastructure law that are specific to blockchain/DLT applications by means of specific amendments (instead of a regulatory carve-out).
Switzerland’s governing body also proposed adjustments in insolvency law calling for clarification with regards to the segregation of cryptocurrencies and other digital assets in the case of bankruptcy saying it ‘considers it necessary to provide for unambiguous rules regarding the segregation of crypto-based assets from the bankrupt’s estate by analogy to the owner’s right to segregation under current law.’
According to the Federal Council, there is lack of clarity especially in cases where crypto-based assets are deposited with third parties and whether in such a case a debtor has the power to dispose of such assets if the third parties have asserted their rights.
Other areas where the Federal Council has proposed changes include the anti-money laundering law where the body has proposed that decentralized trading platforms be more explicitly subjected to the country’s Anti-Money Laundering Act.
In making the report, the Federal Council has indicated that its goal is to ‘create the best possible framework conditions so that Switzerland can establish itself and evolve as a leading, innovative and sustainable location for fintech and blockchain companies’.
Featured image from Shutterstock. Mark Branson portrait from FINMA.