Is Switzerland really the Crypto/Bitcoin haven everyone is talking about. Are Swiss Laws Really Crypto/Bitcoin friendly? What financial Crypto/bitcoin can I run in Switzerland. Those are a few of the issues we will discuss in this Post. Contact us at [email protected] to receive the full PDF memo on this subject or to start your own Swiss Crypto company
The first thing to understand is that there is no actual swiss law that is regulating the use of crypto currency, there is not a law regulating the commerce of crypto currency and there are no laws regulating crypto based financial services.
MAKING OR RECEIVING CRYPTO OR BITCOINS PAYMENT
Are payments in Bitcoins or other crypto currency authorized in Switzerland?
The Swiss Federal Council confirmed several years ago that
- Intrinsic tokens should be deemed as virtual currency, AND
- Virtual currency must be treated as any other currency
In 2014 Finma issued a paper pursuant to which it determined that:
- ‘Bitcoin’ refers to a virtual currency that can be used to purchase goods and services. AND
- The use of bitcoins as a means of payment is not state-controlled.
This mean that someone will not need a license to:
- make a payment in bitcoin or
- to receive a payment in bitcoin.
Bitcoins or Crypto currencies are a means of payment which use is legal in Switzerland even if it is not state controlled.
As a result, bitcoins payments have become part of the Swiss panorama as mountains, cheese and chocolate and more and more government agencies or private companies accept payments for goods or services in bitcoin.
But what happen if someone enter the bitcoin business on a professional basis
EXCHANGING, TRADING, OR HOLDING BITCOIN ON A COMMERCIAL/PROFESSIONAL BASIS
It is legal to Exchange, Trade or Hold bitcoins on a Commercial/Professional basis?
It is where it becomes a bit complicated
If you remember what I mentioned before
The Swiss Federal Council has stated that
- Intrinsic tokens like bitcoin should be deemed as virtual currency, BUT
- While they are a virtual currency they must be treated as any other currency
Now in Switzerland if an organisation, as part of its business activities, accepts money on a commercial basis it will need but for a few limited exceptions, a bank license.
According to Finma “the same applies to providers who accept bitcoins from clients and administer bitcoin holdings for clients.”
The underlying reason is because they MUST BE TREATED as any other currencies
HOW ARE SWISS FINANCIAL BUSINESSES CLASSIFIED
Swiss law distinguishes between
- Financial Intermediaries: banks, security dealers, that requires a Finma authorisation to operate
- Other financial Intermediaries: asset management, gold traders, money remittance, money exchange and so on…. that need to apply to be supervised directly by Finma or a SRO
Now the distinction between the two status is important because
- One can operate as an “Other Financial Intermediary” with a capital of 20,000 CHF for a GMBH or 100,000 CHF (of which only 50,000 chf need to be paid) for an AG
- But if a business model falls in the Financial Intermediaries business model for example a bank Finma will not grant a bank license without a capital of at least 20,000,000 CHF.
WHAT CRYPTO/BITCOINS BUSINESSES MODELS HAVE BEEN APPROVED BY FINMA AS FINMA/SRO SUPERVISED
We will below list the Bitcoins/Crypto businesses that have been approved by FINMA and that can be operated under the form of a FINMA/SRO supervised company. Meaning no banking license is required.
Bitcoin ATM business Model
Bitcoin Suisse, must have been one of the first company running a bitcoin related business model in Switzerland by establishing a network of bitcoin ATM.
Legal Rationale: This business model must be operated under the form of a Finma or SRO supervised company because funds are just passing through and it does not require to hold client funds (does not requires that a client balance for later use be created.
Bitcoin/Crypto Exchange business model
Several Crypto/Bitcoins exchanges are already operating in Switzerland
Legal Rationale: This business model must be operated under the form of a Finma or SRO supervised company because it does not require to hold client funds (does not requires that a client balance for later use be created).
Crypto Wallet Business Model
XAPO a well know US Crypto Wallet company was the first such company to receive Finma approval to operate a Crypto Wallet business in Switzerland under the form of a FINMA/SRO supervised “Other financial intermediary”.
It however took 2 years of communication with Finma before XAPO received FINMA greenlight to operate as a FINMA/SRO supervised company.
Key Preliminary Question: The key question that Finma had to resolve was as follows whether a wallet hold funds or not?
Does a crypto wallet hold client funds?
As Finma has determined that crypto currencies must be treated the same as other currencies if a Crypto Wallet hold crypto currency “create a balance for later use by the client” then a bank license would be needed.
After 2 years of discussions and exchange Finma has decided to allow XAPO to operate its wallet business under the form of a FINMA/SRO supervised company?
Why Did Finma allows crypto wallet companies to operate as Finma/Sro supervised?
Because a crypto wallet does not actually store a value in crypto currency
All the intrinsic crypto assets like Bitcoin, Ether etc are stored on the their respective blockchains.
The information like your balance is stored on a blockchain block with other details like creation time, balance transaction history etc. All details which can’t be altered.
A Crypto Wallet is solely used by the client to store the encrypted private key that prove the client ownership and right to use of a blockchain block of crypto currency or bitcoins
Legal Rationale: A crypto wallet must be operated under the form of a Finma or SRO supervised company because it does not require to hold client funds (does not requires that a client balance for later use be created) as the bitcoins or other intrinsic crypto currency is not stored into the wallet, it remains in the blockchain
This shows also the pragmatic view that Swiss government and financial regulators have decided to adopt in relation to crypto currencies and fintech business in general.
Contact us at [email protected] to receive the full PDF memo on this subject or to start your own Swiss Crypto company