Switzerland Crypto Regulation Guide—2023

In early November 2022, Switzerland revised the FINMA Anti-Money Laundering (AML) ordinance, confirming that large payments must be prevented from being split into smaller ones as a means of avoiding identity checks under AML requirements. This means that a threshold of CHF 1000 (approx. $1,070) cannot be exceeded in linked transactions within thirty days. The new rule only applies to exchange transactions of virtual currencies to cash or other anonymous means of payment (i.e. ATMs). This once again underscores Switzerland’s desire to provide a regulated framework for companies working with crypto.

Switzerland is one of the biggest banking and finance centers in the world, with a focus on adapting to market innovations. Therefore, the county has been promoting wider usage of crypto and becoming a hub for crypto businesses since 2016—when Zug, a city in Switzerland, started accepting bitcoin as a form of payment for city dues. 

In Switzerland, crypto activity is subject to several laws and regulatory guidelines, including the aforementioned FINMA Anti-Money Laundering Ordinance. Therefore, companies should ensure that they comply with all the latest regulations.

We at Sumsub have prepared this guide to help you understand how crypto regulations work in Switzerland, and how to get registered, licensed and compliant. 

Who is the regulator?

The Swiss Financial Market Supervisory Authority (FINMA) is the main financial markets regulator. The authority publishes regulations and guidelines regarding virtual assets, and also grants corresponding authorization for companies to work legally on the market, including companies dealing with virtual assets, depending on their business nature.

Who is affected?

FINMA divides crypto assets into the following categories:

• Payment tokens are used only as a means of payment and doesn’t include any claim to the issuer;
• Utility tokens provide access to a service or a digital application;
• Asset tokens have a function similar to stocks or bonds and, therefore, are subject to security rules.

Some tokens might serve several purposes and, as a result, fall under several categories (hybrid token) and regulations.

Additionally, FINMA has published a separate guideline regarding the usage of stable coins. 

Unlike AML regulations in many other countries, Switzerland does not use the concept of Virtual Asset Service Providers (VASPs). Instead, crypto companies are considered regulated if they fall under one of the categories of financial intermediaries, as listed in the law (AMLA and AMLO).

A financial intermediary is anyone who provides payment services or issues or manages a means of payment. The provision of services using payment tokens and issuing of payment tokens therefore constitutes the issuing of a means of payment subject to this regulation.

Under current FINMA practice, the exchange of a cryptocurrency for fiat or a different cryptocurrency falls under Art. 2 para. 3 AMLA. The same applies to the offering of services to transfer tokens if the service provider maintains the private key (custody wallet provider).

In relation to asset tokens, AMLA also regulates trading facilities for Distributed Ledger Technology (DLT) securities in accordance with Article 73a FinMIA (DLT trading facilities).

Fot utility tokens, anti-money laundering regulation is not applicable as long as the main reason for issuing the tokens is to provide access rights to a non-financial application of blockchain technology.

Concerning DeFi platforms, FINMA adheres to the following principles:

• Principle of technological neutrality
• Same risks, same rules
• Substance over form

Therefore, each VA project needs to be assessed separately to determine if it is regulated and how.

What are the regulations?

Depending on the type of virtual asset entities deal with, they may be subject to at least the following regulations:

• Anti-Money Laundering Act (AMLA) with corresponding ordinances, stipulating the obligations of financial intermediaries for preventing money laundering;
• The Banking Act, which applies to issuers of tokens that qualify as deposits;
• The Collective Investment Schemes Act, which applies for asset tokens raised from investors with the goal of collective investment;
• The Financial Services Act and the Financial Institutions Act, which apply for all public offerings of securities, which might include tokens.

How to get authorization

In general, companies working in Switzerland need to have authorization. FINMA grants five types of authorisation: licensing, recognition, authorisation, approval and registration.

Financial intermediaries have the option to either get affiliated with a Self-Regulatory Organization (SRO) or get directly supervised by FINMA for anti-money laundering purposes. 

Depending on the nature of the asset and business activity, companies may be obliged to have the following licenses:

• Banking License, which may be required for providers of custody or trading activities with payment tokens, in addition to providers holding payment tokens from several clients in their wallets. 
• FinTech License. Since the FinTech license was introduced, a banking license is no longer mandatory for the activities of FinTech companies. Under certain circumstances, a FinTech license may be sufficient. 

The difference between Banking and FinTech licenses can be found here.

For business models involving securities trading, companies may also need to get authorized under the Financial Institutions Act or the Financial Market Institution Act. 

Companies working with Distributed Ledger Technology (DLT) are obliged to get a license to facilitate trading of DLT securities, if: 

• “Their purpose is simultaneous exchange of bids between several participants and the conclusion of contracts based on non-discretionary rules and which either admits participants in accordance with Article 73c para. 1 let. e FinMA (“retail customers”),;
• Holds DLT securities in central custody based on uniform rules and procedures;
• Or clears and settles transactions in DLT securities based on uniform rules and procedures.”

Financial intermediaries becoming SRO members should:

• Guarantee compliance with the duties specified in the AMLA;
• Have a good reputation;
• Have a person responsible for the supervision of company’s compliance with the AMLA;
• Have qualified participants that enjoy a good reputation and guarantee that their influence is not detrimental to prudent and sound business operations.

FINMA publishes individual licensing guides for different types of companies. In the following links, you can find the list of criteria FINMA analyzes in DLTs, banks, and FinTech companies. The common criteria for all applicants include, but are not limited to:

• Description of general information, such as proposed activity and organisation, including the proposed business activity, geographical scope and target clientele, information about the business premises, infrastructure and personnel, evidence of compliance with the minimum capital requirements, where applicable, etc. 
• Information about the applicant’s share capital, organization chart showing shareholder structure, information on any agreements and other ways by which the applicant may be controlled or materially influenced, etc.
• Information required for individuals and legal entities who are directly or indirectly qualified participants, and about persons entrusted with the administration and management of the business (in case of DLT and FinTech companies); Information regarding the persons in charge of the administration or management (in case of banks);
• Detailed description of business activity and internal organization, including articles of association, business plan including budget, organization and regulations/policies relating to the risk organization, compliance and the internal control system, policies relating to the combating of money laundering and terrorist financing, sanctions regime, reporting and transaction monitoring, overview of the IT and application landscape and internal system connections and so on.
• Information about auditors.

For DLTs, information about custody, clearing and settlement and trade and self-regulatory organisation is also required.

FINMA advises companies applying for a license to first arrange a meeting with FINMA representatives to present their licensing projects and receive initial feedback before submitting their applications.

AML requirements

Companies working with virtual assets (financial intermediaries) must comply with AML requirements when operating in Switzerland. Therefore, companies should implement at least the following measures:

• Identification and verification of customers;
• Clarification of the financial background and purpose of the business relationship or transaction;
• Monitoring transactions of customers;
• Recordkeeping (keeping the records of transactions and customers for at least ten years after the end of a relationship);
• Implementation of internal controls, such as issuing policies and procedures, training staff, and performing inspections;
• Complying with the Travel Rule, by which they have to obtain information of senders and recipients of a transaction to share with their counterparty; 
• Reporting (companies should immediately report any type of suspicious activity to the Money Laundering Reporting Office (MROS) of the Federal Department of Justice and Police).

In 2022, Switzerland introduced tougher regulations regarding AML checks to prevent a threshold of CHF 1000 (approximately $1,070) from being exceeded through smaller, linked transactions within thirty days. 

Conclusion

Switzerland is creating a digital heaven for crypto companies by adopting new regulations to ensure that companies are safe and digital assets aren’t abused by criminals. The country is also establishing new initiatives in line with international recommendations, such as those of the Financial Action Task Force (FATF). 

Crypto companies planning to operate in Switzerland, therefore, need to keep up with the fast-paced regulatory environment of the country. To comply with the regulations, it is important to properly organize the identification and verification procedures—which, if done incorrectly, may lead to wasted time and money. To avoid this, companies should establish adequate internal controls and employ a sufficient KYC provider. 

FAQ

• Is crypto legal in Switzerland?

  Cryptocurrency is not prohibited in Switzerland and can be used in the country, but is not considered legal tender.

• Is crypto trading allowed in Switzerland?

  Yes, it is allowed. There are no regulations against the usage of crypto currencies. A person can trade with crypto without any specific approval.

• Does the Travel Rule apply to crypto in Switzerland?

  Yes, it does. The Swiss Financial Market Supervisory Authority (FINMA) introduced the Travel Rule in 2019, which took force in 2020. The rule requires financial intermediaries (companies working with cryptocurrency) to obtain information on senders and recipients in a transaction to share with their counterparty (financial intermediaries, i.e. companies working with cryptocurrency).

• Does Switzerland tax crypto?

  Yes, it does. The working paper on tax treatment, written by the Swiss Federal Tax Administration, provides a clear explanation on the taxation procedures of virtual assets in the country.

• What is Swiss cryptocurrency?

  It’s called the CryptoFranc (XCHF). It is a stablecoin and directly tied to the Swiss Franc. FINMA classifies CryptoFranc as a payment token. Each of these tokens represents one Swiss Franc against the issuer backed by a bank guarantee. It was launched by Swiss Crypto Tokens AG on November 1, 2018 as a bond and converted into a token in January 2021.