The Swiss Federal Assembly, which handles government legislation, approved on March 20th a motion directing the Federal Council to regulate cryptocurrencies.
Liberal Assemblyman Giovanni Merlini will instruct the Federal Council on adapting existing legislation to include and accommodate cryptocurrency and associated risks. The Council approved the motion with 99 to 83 votes in favor and 10 abstentions.
The motion is the first step in tackling issues like money laundering, extortion, and criminal fraud. While these are all major issues in government-backed fiat currencies like the Swiss Franc, fiat currency has strict regulations in place allowing the government to prosecute criminals and regulate market activity and unfair practices like price manipulation.
In cryptocurrency there is often no such regulation, allowing major asset holders (“whales”) to apply what are, in the stock market, illegal price manipulation tactics without any legal repercussions. Much of the volatility in the price of bitcoin in recent years has been attributed to deliberate manipulation.
While whales manipulate prices by suddenly placing massive buy or sell orders to create market panic, cryptocurrency scams are often difficult to prosecute as well on the basis that cryptocurrency is often not recognized as legal tender.
Money laundering is a concern among regulators as well – it’s a relatively simple matter of using cash to buy Bitcoin at an ATM or in-person, or large sums via OTC trading. These funds can then be exchanged for privacy coins on a decentralized exchange, for example, rendering it perhaps impossible to trace depending on the security protocols in place. Unregulated ICOs are another vehicle through which funds could be laundered with relative ease for people in the know.
Exchanges and investment vehicles will be regulgated and the legislation will determine whether exchanges should be viewed as financial intermediaries in the eyes of the law.
The move aims to close perceived gaps in protecting cryptocurrency users from illicit activities like extortion and money laundering. The legislation is set to determine how to stifle cryptocurrency-associated risks, as well as whether entities operating crypto trading platforms should be equated with financial intermediaries, and thus be subject to financial market supervision.
Following the approval, Swiss finance minister Ueli Maurer reportedly stated that the proposed developments exceeded the scope of the planned regulation.
Earlier this month, a Swiss banking authority called the Basel Committee on Banking Supervision (BCBS) stated that cryptocurrency sector growth could “raise financial stability concerns and increase risks faced by banks.” The BCBS also criticized the fundamentals of cryptocurrency technology, calling cryptocurrency “unsafe” and unreliable as a means of exchange or store of value.
While the banks may be worried, the government has welcomed cryptocurrency with open arms. Swiss Economics Minister Johann Schneider-Ammann stated at a crypto finance conference that Switzerland aims to be the “Crypto Nation”. Swiss Finance Minister Jörg Gasser has previously said that while the market isn’t as “disciplined” as the government would like, it aims to support a “flourishing” cryptocurrency sector.