As the Swiss FinTech industry grows rapidly, uncertainty spreads across the traditional banking industry. Should Swiss banks do business with blockchain companies? On 20. September 2018, the Swiss Banker Association has published compliance related guidelines.
The SBA views the FinTech industry and its achievements and innovations as very beneficial to the Swiss economy. Consequently, Swiss banks are part of the FinTech ecosystem and see blockchain technology as an opportunity, opening up an array of possibilities for the country as a financial and technology location. Nevertheless, banks should ensure that they comply with all applicable laws and regulations when contracting with FinTech companies and, in particular, when opening corporate accounts. Overall, the Guidelines intend to reduce the risks associated with accounts opened for blockchain companies. In particular, the principles contained in the Anti-Money Laundering Act (“AMLA”), its ordinances (in particular the Anti Money Laundering Ordinance of FINMA [“AMLO-FINMA”]) as well as the Agreement on the Swiss banks’ code of conduct with regard to the exercise of due diligence (“CDB 16”) should be observed.
Banks are encouraged to take a differentiated approach to account opening and KYC procedures related thereto. The principles laid out in the Guidelines differ depending on the type of counterparty who intends to open a corporate account with a bank. If the counterparty is active in the blockchain sector, but does not seek to finance its activities via an ICO, the rules and KYC principles that apply are less stringent than in cases where a blockchain company envisages to conduct or has already conducted an ICO.
First scenario: Blockchain companies without involvement in an ICO
Companies active in the blockchain industry that are not using its technology for corporate financing purposes should be treated like ordinary companies opening a bank account. Banks should comply with any requirements laid down in the AMLA, AMLO-FINMA and the CDB 16. Companies that wish to open an account have an obligation to cooperate in the account opening process. Moreover, companies must demonstrate that they comply with all laws and regulations applicable to them and they be should able to show a meaningful business plan and adequate processes and resources. The Guidelines contain a checklist with various aspects that banks should cover in their due diligence, including documents to collect (e.g. whitepapers).
Second scenario: Blockchain companies involved in an ICO
Banks should treat blockchain companies that use their technology for financing purposes, in particular via an ICO, with more scrutiny. Corporate financing, i.e. raising capital, can occur either via FIAT money or via cryptocurrencies, such as bitcoin. If companies seek financing via crypto currencies, the Guidelines suggest applying additional KYC checks that follow stricter requirements. Whether or not a token issued qualifies as crypto currency should be evaluated based on FINMA’s respective guidelines of 16 February 2018. However, the bank should generally assume that any token might be a payment token unless the company seeking to open an account provides any evidence to the contrary (e.g. by providing a FINMA ruling). These standards should generally follow the principles laid out in the AMLA and related regulations, but might also go beyond as the specific risks in question may imply. The Guidelines contain a checklist with various points to consider in this respect, including KYC considerations and further checks to be performed and documentation to be collected. In particular, the Guidelines suggest that the company in question should provide evidence that it has fulfilled and that it continues to fulfil any legal requirement under the AMLA, including due registration with a self-regulatory organisation for anti-money laundering purposes. This includes due identification of any token holder providing funds to the company within the ICO process as the AMLA may require.
Relevance and impact of the Guidelines
The Guidelines and the principles set out therein have not been approved by FINMA and may therefore not be viewed as a supervisory minimum standard as provided by Art. 7 para 3 of the Financial Markets Supervisory Authority Act (“FINMASA”). While the Guidelines may be helpful as a starting point, they are not meant to replace any internal guidelines or policies a bank may have in place. Any bank interested in doing business with blockchain companies should therefore manage the potential risks and exposure due to the nature of the blockchain business and potential crypto currencies involved on an individual basis.
Banks should in a first step individually decide as a strategic matter whether they at all want to accept companies in the block chain sector as clients. It should be noted that a majority of the banks has decided not to accept any clients in this sector. This is generally a strategic decision that can be freely made by any bank in its sole discretion and there is no obligation to do business with the blockchain sector, even in light of the Guidelines. Any bank that choses to enter into that market should identify the particular risks it faces and take the necessary precautions to manage these risks. The Guidelines may offer a valuable starting point in this respect.
While the Guidelines mainly address the banks and their compliance management, companies active in the crypto currency sector are also concerned, as they will have to make sure they are able to provide all the relevant information the Guidelines require in order to be acceptable as a bank client. Block chain companies, in particular those in the ICO field, should therefore study the checklists contained in the Guidelines and make sure they are compliant. Furthermore, block chain companies involved in ICOs concerning crypto currencies should ensure they are compliant with the AMLA and its principles. If they fail to do so, banks may not accept them as clients.