During its meeting on 22 March 2019, the Federal Council initiated the consultation on the adaptation of federal law to developments in distributed ledger technology (DLT) which will last until 28 June 2019.
Overview of Proposed Adjustments
In December 2018, the Federal Council adopted a report on the legal framework for blockchain and Distributed Ledger Technology (DLT) in the financial sector. The report showed, inter alia, that Switzerland's legal framework is already well suited today to handle new technologies, including DLT. It identified, however, the need for selective adaptions. Cosequently, in the consultation draft which is now available, the Federal Council proposes the following adjustments, in particular:
- Swiss Code of Obligations: To increase the legal certainty for the transfer of DLT-based assets, the possibility of an electronic registration of rights that can guarantee the functions of securities (Wertpapiere) is to be created.
- Federal Law on Debt Collection and Bankruptcy: As of today, there is legal uncertainty regarding the segregation of cryptobased assets. Therefore, a new provision is to be introduced which, under certain circumstances, creates a right to the surrender of cryptobased assets. In addition, a statutory right to access data in the custody of the bankrupt's estate is to be created.
- Financial Market Infrastructure Act: A new authorisation category for so-called "DLT trading facilities" is to be created so that financial market infrastructure services for DLT-based assets may also be provided directly to private customers and not exclusively via reaglated financial intermediaries. It is also intented that the DLT trading facilities are subject to the Anti-Money Laundering Act.
- Future Financial Institutions Act (which is expected to enter info force on 1 January 2020): The Federal Council proposes the possibility for market participants to apply for a licence as securities firm (Wertpapierhaus) exclusively for the purpose of operating an organised trading facility.
Specific Proposed Adaptions of the Swiss Code of Obligations
From a civil law point of view, two types of tokens can be distinguished. On the one hand, the so-called payment tokens which represent purely factual, intangible assets, and on the other hand tokens that represent a legal position (claim, membership).
Civil law does not impose any requirements for payment tokens and therefore there are no obstacles for their transfer. Consequently, with regard to the transfer of crypto currencies, there is no need to adapt civil law. There is, however, a need to adapt civil law with regards to tokens that represent a legal position. According to the view of the users, these tokens should fulfill a similar function as securities do today. Since an entry in a register accessible to interested parties can create publicity similar to the possession of a security, it seems appropriate to grant this entry similar legal effects. Thus, the Federal Council is proposing an amendment to the securities law by creating the possibility of an electronic registration of rights which can guarantee the functions of securities. The prerequisite is that the rights are mapped in a distributed electronic register based on DLT which meets certain criteria and that the parties entitled and obliged by the right have agreed to this registration. If this is the case, the registry will perform the following functions, which have traditionally been performed by securities:
- An electronically registered uncertificated security in accordance with the rules (so-called DLT uncertificated security) can be legally transferred by way of a register transaction (Transportfunktion).
- The parties should be able to agree that uncertificated securities can only be asserted and transferred via the register. Whoever is identified as entitled in the register must in principle also be considered entitled (Legitimationsfunktion).
- Securities of public faith: The parties should be able to rely on the authorisations depicted in the register (Verkehrsschutzfunktion).
In addition, selective adjustments are required for two categories of securities: shares (Aktien) and documents of title to goods (Warenpapiere). In the future, these categories of securities will also be able to be represented in distributed electronic registers, while retaining the special provisions applicable to these categories of securities.
It has to be noted that the proposed amendments to the securities law only regulate the contractual assignment of DLT uncertificated securities. The modalities of acquisition of title on other legal grounds (e.g. through universal succession in an inheritance) remain unaffected by the proposed amendments.
Consultation Period ends on 28 June 2019
The addressees of the consultation will now have time until 28 June 2019 to comment on the various proposed adjustments on improving the framework conditions for blockchain/DLT.