Switzerland Crypto Regulations

Swiss Confederation

July 2021

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Switzerland Crypto Regulations

Switzerland’s crypto ecosystem is one of the most developed in the world, with legislation aimed at bringing blockchain technology into all sectors of the economy.

Switzerland Crypto Regulations

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The mountainous global financial hub country of Switzerland is well-known for being a large gold refiner and the seat of the Bank for International Settlements (BIS), the ‘central banker’s bank’ in Basel, where central bankers from many states convene regularly to discuss fiscal policy and combat financial crises, amongst other issues.

But the new digital gold, Bitcoin, has been gaining steam in the country in recent years as the technology’s potential to revolutionize the financial industry - by increasing the transparency, speed and lowering the costs to transactions, actors and markets - is becoming realized. This is evident in the fact that a number of financial institutions have begun to custody the asset class of crypto.

The country is home to more than 900 blockchain-native businesses including the Ethereum and Polkadot protocols, major crypto asset custodian Nexo and the Diem Association. This high penetration of companies is due to Swiss crypto laws such as the Blockchain Act of 2020 offering positive clarity to DLT (Distributed Ledger Technology) projects. Many of these projects are headquartered in the ‘Crypto Valley’ - a region of Switzerland, the canton of Zug - where residents are even able to pay their taxes in crypto assets, a world first.

As a member of the FATF (Financial Action Task Force) - the global Anti-Money Laundering and Combatting the Financing of Terrorism watchdog - Switzerland’s AML and CFT regulatory framework against financial crime is stringent, including that of crypto assets.

Coinfirm's Guide to Switzerland Crypto Regulations

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In this report on Switzerland’s cryptoasset regulations, Coinfirm overviews;

Key Takeaways

General legality1.AML/CFT2.

FINMA3.

Exchanges4.

Crypto ‘banks’5.

ICOs6.

Tax and the ‘Crypto Valley’7.The Blockchain Act8.

Zug residents pay taxes in crypto

Strict AML, KYC & CFT requirements

Cryptocurrencies are legal tender in

some cases

Closely aligned with the FATF

FINMA & SFTA oversee cryptoasset

activities

Cryptocurrency banks &

exchanges are legal

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Bitcoin and cryptocurrencies can be bought in Switzerland from ATMs, crypto ‘banks’ and centralized exchanges.

Whilst Bitcoin can be purchased from DeFi exchanges (DEXs), they are currently unregulated entities and thus Coinfirm cannot recommend this route.

Can Bitcoin be Legally Bought in Switzerland?

Switzerland’s crypto regulations consist of some of the most stringent AML and KYC policies in the world. Whilst a proposed ruling by the US’s FinCEN on self-hosted wallets has raised concerns in the country on innovation and privacy rights, Switzerland has implemented this rule for a considerable amount of time. In August of 2019, FINMA’s guidance on “Payments on the Blockchain” lowered the KYC (Know-Your-Customer) reporting requirement from 5,000 CHF to 1,000 CHF.

AML Regulations Applicable to Cryptocurrencies

FINMA stated in relation to the “Payments on the Blockchain” that this change to legislation was made partially in response to the FATF’s Recommendation 16 or ‘Travel Rule’ on AML.

In its FINMA provides information about this technology-neutral application of the regulation to payment transactions on the blockchain. FIs under the regulatory authority of Switzerland’s regulator are only allowed to transfer cryptoassets to other wallets (such as self-hosted wallets) that are owned by a beneficiary whose id has already been KYC (Know-Your-Customer) identified and verified. FIs are only allowed to receive digital assets from these customers.

This practice applies as long as information about the sender and recipient cannot be transmitted reliably in the respective payment system. Unlike the FATF standard, this established practice applies in Switzerland without the exception for unregulated wallets.

Download FINMA's guidance to Payments on the Blockchain here.

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Switzerland Crypto Regulations

The Anti-Money Laundering Act (AMLA) of 1997 is the main basis for Switzerland’s AML policies. This federal act applies to financial intermediaries and governs the combating of money laundering and terrorist financing. It ensures the exercise of due diligence in the conduct of financial transactions.

Download FINMA's AMLA guidance.

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Switzerland Crypto Regulations

The Swiss Financial Market Supervisory Authority or ‘FINMA’ is Switzerland’s financial regulatory authority overseeing Switzerland’s financial markets and service providers. Founded in 2002, it is an independent institution – based in Bern – with power over banks, insurance companies, stock exchanges, securities dealers and collective investment schemes. It is responsible for combating money laundering and, where necessary, conducts financial restructuring and bankruptcy proceedings.

FINMA grants operating licences for companies and organisations subject to its supervision, monitors the supervised institutions with respect to their compliance with the requisite laws, ordinances, directives and regulations, as well as with the conditions for the granting of licences that must be complied with at all times.

For VASPs (Virtual Asset Service Providers) looking to be based in Switzerland, an application for a licence from FINMA is required.

What is FINMA?

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Yes. Cryptocurrency exchanges are legal in Switzerland as long as they are licenced and therefore regulated by FINMA. Exchanges or more broadly, VASPs (Virtual Asset Service Providers), are legal and regulated in Switzerland.

Exchanges must carry out Enhanced Due Diligence with respect to AML (Anti-Money Laundering) and CFT (Combatting the Financing of Terrorism). Stringent KYC (Know-Your-Customer) checks must be complied with in regards to the AMLA (Anti-Money Laundering Act).

Are Crypto Exchanges Legal?

In 2019 Switzerland’s FINMA granted licences to two financial institutions (FIs) to carry out cryptocurrency trading and custody activities. This enables these banks to also maintain business customer accounts and support the wider blockchain economy's infrastructure.

This is part of a wider trend that is beginning to take hold of FIs and the ‘traditional system’ embracing distributed ledger technology and incorporating cryptoassets into portfolios, ETFs (Exchange-Traded Funds) and other financial products and services. In Switzerland, this has been taken up particularly quickly in the wake of the ‘Blockchain Act’, with a further two FIs granted licences in 2020.

Crypto 'Banks'

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Swiss crypto laws around ICO’s are stringent. Due to the concentration of wealth in the country, the benefit of association with the jurisdiction in relation to financial markets and a number of other reasons, Switzerland is a hot spot of ICOs (Initial Coin Offerings).

In recognition of the possibility for this system to be open to abuse, regulations around ICOs were developed in Switzerland in 2018, shortly after the ICO boom of 2016-7.

Switzerland’s FINMA takes the ‘same business, same rules’ approach to ICOs whereby new technology is not treated differently if it performs the same function. FINMA argues that ICOs can be regulated under current financial securities rules, however, the regulatory body has offered insight in the form of “ICO Guidelines“. Initial Coin Offerings are regulated under provisions on combating money laundering and terrorist financing, banking law, securities trading and provisions set out in collective investment scheme legislation.

FINMA's ICO Guidance

FINMA’s ICO regulations in relation to the different token categories;

■ Payment Token Initial Coin Offerings: Where thecoin’s purpose is as a means of payment and canalready be transferred, Switzerland’s regulator willrequire compliance with AML/CFT laws. These arenot treated as financial securities.

■ Utility Token Initial Coin Offerings: This type ofdigital asset does not fall into the category ofsecurities if the singular goal is to give digitalaccess ‘rights’ to an application/service – and if thecoin can already be used in this way at the point ofissuance. If these ICOs operate singularly or partlyas an ‘investment’ under FINMA’s guidance – theywill therefore be regarded as financial securities.

■ Asset Initial Coin Offerings: FINMA regardsasset  tokens as securities, which means thatthere are securities law requirements for tradingin such coins.

Download FINMA's ICO guidance here.

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In 2020, Swiss residents of the canton of Zug, the 'Crypto Valley' were informed of the ability to pay their taxes in Bitcoin and cryptocurrencies up to 100,000 CHF, starting in February 2021. The Swiss Federal Tax Administration (SFTA) supervises tax collection in Switzerland.

The Canton of Zug holds the moniker of the 'Crypto Valley', after the formal establishment of the Crypto Valley Association there in 2017.

Swiss Crypto Tax & the ‘Crypto Valley’

The ‘Blockchain Act‘ is a set of Swiss Parliament amended laws, passed in 2020, that pave the way for DLT (Distributed Ledger Technology) uptake in the broader economy. It will make the creation of tokenized versions of company shares, real estate holdings, art and other assets that can be listed and traded on blockchains more accepted.

The ‘Blockchain Act’

Swiss Federal Tax Administration seen on the left with FINMA on the right. The SFTA or ‘Swiss Federal Tax Administration’, the country’s tax collection authority, regards Bitcoin, Ethereum etc to be classed as ‘assets’ and are therefore covered by Switzerland’s Wealth Tax and must be declared on yearly returns, in addition, tax returns will be required to include the source of funds from cryptocurrency wealth.

Main importance of the Blockchain Act;

■ DLT rights as the digital alternative to certificated securities■ DLT rights should be exclusively transferable through the

blockchain■ Intro of a new type of licence category for trading venues,

where DLT rights can be traded■ Segregation rights for cryptoassets held in custody by a

third party (e.g., a wallet provider), in case of bankruptcy ofsuch third party

The Blockchain Act does not address a CBDC (Central Bank Digital Currency) or ‘e-Franc’. Download the

Blockchain Act here.

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Switzerland Crypto Regulations

Founded in 2016, Coinfirm is the world leader in blockchain analytics and regulatory technology (‘RegTech’) solutions. The company specializes in blockchain AML (‘Anti-Money laundering’) services and fraud investigations and offers the industry’s largest blockchain coverage, supporting 1,500+ crypto assets including Bitcoin and the ERC-20 standard.

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Switzerland Crypto Regulations

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July 2021

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