A primer on the regulation of the trading in cryptocurrencies and the asset management related to cryptocurrencies in Switzerland

Cryptocurrencies, which are based on distributed ledger technology, have gained importance in financial services in the recent past. This primer seeks to give an overview of the key obligations under Swiss regulatory laws related to:

  • Trading in cryptocurrencies
  •  Initial coin offerings (ICOs)
  • Entities trading in cryptocurrencies
  • Asset management related to cryptocurrencies
  • Anti-money laundering obligations

Trading in cryptocurrencies is increasingly subject to regulation on multiple levels, namely:

  • Trading
  •  ICOs
  • Entities trading in cryptocurrencies
  • Asset management related to cryptocurrencies

Payment tokens, exchange of cryptocurrencies into fiat money, custody wallets, banks, securities dealers and asset managers are generally subject to anti-money laundering requirements, such as registration, supervision and identification of counterparty requirements. Anti-money laundering obligations are the basic regulatory requirements that apply to most entities trading in cryptocurrency markets. Depending on their additional activities, they might require a licence as a bank, securities dealer (Swiss version of an investment firm), bilateral organised trading facility (OTF) or asset manager, or a combination of these licences. Switzerland is also planning to introduce a new licence category in the near future, called fintech-bank. Licences are required in the cases listed below.

  • Accepting client deposits, in particular when issuing OTC derivatives which are not securities, generally requires a banking licence. The banking licence is the highest regulated category of financial market participation. Cryptocurrencies and their associated private keys may be deposits under the Swiss Banking Act.
  • Trading in cryptocurrencies which are securities, either on behalf of clients or on one’s own account (if certain turnover thresholds are being exceeded), generally requires a securities dealer licence. The licensing requirements also apply to the entity’s public issuing of derivatives. Bilateral systematic internalisation of cryptocurrencies and related derivatives or financial instruments is subject to additional regulatory requirements under the Swiss Financial Market Infrastructure Act (FMIA).
  • Asset management activities related to Swiss and foreign collective investment schemes regarding cryptocurrencies and related financial instruments generally require a licence. The distribution of collective investment schemes and the representation of foreign collective investment schemes also require a licence. Individual portfolio management and advisory activities are, under the current regulatory regime, not subject to a licensing requirement (except for AML registration). However, this is likely to change under the new regulatory regime planned to enter into force soon.

Trading in cryptocurrencies that are derivatives may be subject to multiple obligations depending upon the status of the counterparties involved, such as reporting and risk mitigation (trade confirmation, portfolio reconciliation, portfolio compression, dispute resolution and valuation, as well as initial and variation margins).

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Martin Liebi
Director, PwC Legal Switzerland
Tel: +41 58 792 28 86
martin.liebi@ch.pwc.com

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Martin Liebi

Martin Liebi

Dr. iur. Martin Liebi LL.M., attorney-at-law, CAIA, advises on and implements as Head Capital Markets within Pricewaterhouse Coopers Ltd. Legal FS Regulatory & Compliance Services practice, a wide array of regulatory change management programs.

Martin Liebi has more than 14 years experience with leading Swiss and US law firms in the areas of capital market law, banking law (private banking, asset management, and investment banking), financial market regulation, securities law, corporate law, M&A, and general commercial law.

He has been head legal with a Swiss Private Bank and head compliance with a Swiss Fund-of-Hedge Funds. He has studied law at Stanford University (LL.M.), the University of Zurich (Dr.iur.), the University of Fribourg (Lic.iur.), and Leiden University (LLC). He holds also a Management Degree from Harvard University.

He serves as judge at the commercial court of Zurich and is a lecturer at the University of Zurich’s LL.M. program in Banking & Finance (Regulation of European Capital Markets as well as Regulation of Banks and Securities Dealers). Martin Liebi publishes and holds talks regularly about current topics in financial markets law.