The rules of the game for activities in digital assets in Switzerland

2021 is shaping up to be an outstanding year again for digital assets. The markets in digital assets have considerably matured since the last bull market. We see an increased move into the next phases of the value chains, such as asset management and payment service activities. Switzerland is one of the most developed and open global jurisdictions for digital assets and attracts a great number of market participants. The primer on the regulation of digital assets will serve new entries and existing market participants as a guideline for setting up an operation in digital assets in Switzerland. 

Switzerland has one of the most welcoming and liberal regulatory regimes for digital assets

Payment tokens, exchange of digital assets into fiat money, custody wallets, banks, investment firms and asset managers are generally subject to anti-money laundering requirements, such as registration, supervision and identification of counterparty requirements. Anti-money laundering obligations are the basic regulatory requirements that apply to most entities trading in cryptocurrency markets. These requirements can be fulfilled by means of a registration with a self-regulatory organisation (SRO) for anti-money laundering (AML) purposes.

Depending on their additional activities, they might require a licence as a bank, fintech company, investment firm, bilateral organised trading facility (OTF), portfolio manager, DLT trading system or a combination of these licences. Licences are required in the cases listed below.

• Accepting digital assets for custody in the form of securities or trading for clients in digital assets that are not securities can be done by merely being registered with an SRO for AML purposes.
• Accepting client deposits generally requires a banking licence or fintech licence. The banking licence is the highest regulated category of financial market participation. Digital assets and their associated private keys may be deposits or crypto-based assets (as introduced in the future) under the Swiss Banking Act.
• Trading in digital assets which are securities, either on behalf of clients or on one’s own account (if certain turnover thresholds are being exceeded), generally requires an investment firm licence. The licensing requirements also apply to the entity’s public issuing of derivatives. Bilateral systematic internalisation of digital assets and related derivatives or financial instruments is subject to additional regulatory requirements under the Swiss Financial Market Infrastructure Act (FMIA). 
• Asset management activities related to Swiss and foreign collective investment schemes regarding digital assets and related financial instruments generally require a licence. The distribution of collective investment schemes potentially requires a registration with a client advisor registry, and the representation of foreign collective investment schemes requires a licence. Individual portfolio management and advisory activities are subject to a licensing or registration requirement.

Trading in digital assets that are derivatives may be subject to multiple obligations depending upon the status of the counterparties involved, such as reporting and risk mitigation (trade confirmation, portfolio reconciliation, portfolio compression, dispute resolution and valuation, as well as initial and variation margins).

Transfers of virtual currencies are also subject to increased AML requirements.

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