The Federal Council issues a legislative proposal for the improvement of the legal framework for DLTs
The draft presented by the Federal Council proposes an amendment to the Swiss Code of Obligations with the insertion of new sections 973c–973i.
Swiss law will recognise the issuance of uncertificated securities on distributed ledger platforms (the new "registered uncertificated securities") if three conditions are met: (i) the beneficial owner can use the platform to dispose of (i.e. assign) its rights to a third party; (ii) the integrity of the platform is guaranteed by appropriate technical and organisational measures; (iii) the ledger of such rights can be consulted by the holders. The details of the rights and functioning of the platform must be explained on the platform itself and the system must be functioning at all times (973d P–SCO). Provided these conditions are met, transfers of such rights on distributed ledger platforms will be recognised under Swiss law and the holder of the rights will be considered the legitimate beneficiary.
The set of amendments also entitles public limited companies to issue shares directly on distributed ledger platforms, with reference to the corresponding sections on the issuance of shares (622 P–SCO).
It is interesting to note that the issuer has an obligation to inform any acquirer of such rights of the content of the rights and the functioning of the distributed ledger platform and will be held liable for any damage arising from an omission to do so, unless the issuer can demonstrate that all necessary diligence was exercised. This liability derives from the law and cannot be restricted by agreement (973i P–SCO).
The proposed amendment aims at solving the problem caused by the absence of material support for information stored on DLTs.
Under the traditional views and legal concepts, the owner of material assets can ask for their extraction from a bankruptcy estate if legitimate ownership can be demonstrated (rei vindicatio). This has appeared problematic in the context of DLTs.
Under the new legislation, third parties can claim back their crypto-assets in cases where the bankrupt entity retained the ultimate control over such assets (like a wallet service provider) and ask for their extraction from the bankruptcy estate.
A right to access data was also introduced. Information stored on decentralised ledgers can represent considerable value (such as a public key balance in BTC). The current law only allows for claims concerning "objects" (i.e. material things). The proposed amendment is also intended to solve this problem for other types of information and parties, such as accounting records and lists of clients. In other words, the proposed amendment does not only target a problem faced by DLT-related entities, but adapts the current legislation to more modern concepts and realities.
The set of proposed amendments is a new step in the inclusion of new technologies in the current Swiss landscape, at a moment when other jurisdictions are adopting some changes in their own legislation – or plan on doing so in the very near future.
The Federal Council made the decision not to adopt a new set of laws/regulations directly addressing DLTs but to modify certain key sections of the existing law which conflict with the new legal approach that is necessary for DLTs to be relevant and effective, such as the absence of written form, the absence of a central depository of information and contradiction with the more "classic" concept of possession.
The proposal will be examined in early 2020 by the Swiss Parliament.
The full proposal of the Federal Council can be found here.
Dr. Günther Dobrauz
Partner and Leader Legal, PwC Switzerland
Tel: +41 58 792 14 97
Partner, Head Banking, Legal, PwC Switzerland
Tel: +41 58 792 15 54
Senior Manager, Legal, PwC Switzerland
Tel: +41 58 792 92 24
Manager, Legal, PwC Switzerland
Tel: +41 58 792 98 45