Traditionally, Switzerland has been one of the world’s leading financial centers. Not least because of its strict data protection laws, efficient regulatory approach and business-friendly attitude. Since 2013, the Swiss Confederation has been emerging as an international hotspot for the development of distributed ledger technologies with more and more corporate headquarters and an innovative blockchain-enabled ecosystem.
Crypto Valley – new blockchain hubs in Switzerland
Thanks to existing regulation and supervision by the Swiss Financial Market Supervisory Authority (FINMA), the authorities issued the first banking licenses as early as 2015. This allowed startups in the booming blockchain and fintech industry to continue to settle here – it was the birth of the Swiss “Crypto Valley”. As a pioneer of the blockchain and crypto scene, the city of Zug was the first to make a name for itself in Crypto Valley. The city is attracting new ventures in blockchain.
Paying tax bills with bitcoins
For example, back in 2016, the Zug City Council decided to accept Bitcoins as a means of payment for services up to 200 Swiss francs. Since the beginning of this year, the cantonal tax authority has also allowed the population to pay their tax bill in the cryptocurrencies Bitcoin and Ethereum up to the maximum amount of 100,000 francs. The city is supported in these projects by companies such as Bitcoin Swiss and Etherum, which were the first to settle here
Tokenization – thanks to Swiss jurisdiction
This boom is mainly thanks to Swiss politics and jurisdiction. It created the new legal framework for the burgeoning ecosystems. It was necessary to further promote the numerous other fields of application for DLT technology. Example: the tokenization of assets, which is invigorating the financial market.
Switzerland secured tokenization in the law
Asset tokenization has been a common practice in the Swiss financial market since the introduction of blockchain. Legally secured by existing legislation via the Swiss Financial Market Infrastructure Act (FinfraG). People linked securities (bonds or shares) to a token by contract, so that the securities and the token could not be transferred independently.
Regulations on trading were missing
This was a first step, although it was not fully legally secured. This is because regulations on trading were missing. DLT technology offers far more potential applications for tokenization than the mere digital securitization of assets. To enable the full potential of the new technology in the financial sector, Switzerland has now created a unique legal framework worldwide.
Lex DLT – opportunities for the Swiss capital market
Back in September 2020, the Swiss parliament passed the Federal Law on the Adaptation of Federal Law to Developments in Distributed Electronic Register Technology (DLT Bill). With this law, Switzerland created a stable legal basis: from then on, it was possible to exploit the potential of asset tokenization and tokenization of securities in terms of custody, transfer and trading in the future.
Blockchain law put into force
As of February 1, 2021, Switzerland’s “Blockchain Law” initially enacted those elements of the DLT Bill that allowed for the introduction of a new category known as register value rights. The register value right as a new form of security found its way into the Swiss Code of Obligations.
An initial application followed immediately, with the Swiss law firm MME and the Swiss digital share platform daura creating the first Swiss register value rights on February 1, 2021. Shares of MME Compliance AG are now registered as such on the daura infrastructure as a digital share platform.
August 2021: Federal Council puts Lex DLT into force
In June 2021, the Swiss Federal Council then fully enacted the second part of the “Lex DLT” as of August 1, 2021. Securities law as well as the Financial Market Infrastructure Act and the Debt Enforcement and Bankruptcy Act were adapted. This provided a secure legal basis for the trading of rights via electronic registers. In addition, a new authorization category for DLT trading systems was added. This results in a flexible legal framework for new forms of financial market infrastructures.
Law integrated into legal framework
Switzerland did not write any new laws. Rather, it adapted numerous already existing laws in such a way that the result was a manageable legal framework for all users. On the one hand, this pragmatic approach guarantees that innovations in DLT technology can be flexibly integrated into the legal framework that has now been set. On the other hand, it safeguards the integrity and good reputation of Switzerland as a financial and business center.
Legislative amendments viewed positively
The Mantelgesetz contains legislative amendments to the Swiss Code of Obligations (OR), the Debt Enforcement and Bankruptcy Act (SchKG) and other financial market laws. The amendments to the law meet the requirements, confirms Lea Hungerbühler, a lawyer and expert in financial market law, in a “Fokus” article. Two main areas are worth mentioning, she said.
- Legal representation of the blockchain: “With the DLT Act, a total of ten federal laws have been selectively adapted. In particular, the legal figure of a register value law is introduced in the Code of Obligations,” says Hungerbühler. This creates a robust legal basis for the digitization or tokenization of assets (rights) such as shares, bonds and other financial assets. “There is thus a legal basis in the CO and the Intermediated Securities Act to issue and transfer shares on the blockchain in particular.”
- Licensing category for crypto exchanges: in addition, a new licensing category has been created for crypto exchanges. The development in the token economy is ongoing, he said. “Therefore, the law also contains adaptations, for example, in the Financial Services Act (FIDLEG), the Anti-Money Laundering Act (AMLA) and the Banking Act (BankA),” says Lea Hungerbühler.
The crypto nation of Switzerland
Along with Liechtenstein, Switzerland is one of the few countries that have adopted comprehensive crypto and blockchain regulation. The legislation takes into account all important facets of the industry. Especially important: It grants legal certainty to all market participants. With the “Lex DLT”, Switzerland once again secures its position as one of the leading crypto nations in the world. Authorities and politicians adopted an innovative and courageous set of regulations at great speed, creating ideal framework conditions for rapid growth for the already strong Swiss blockchain ecosystem. There are already numerous players in the market: startups, universities, innovative companies, strong technology, financial, pharmaceutical and industrial clusters.
Legal security for companies
The legal situation provides security for companies. More innovative business models, products and services in the field of DLT and blockchain will emerge and further strengthen Switzerland as a business and innovation location. The financial industry in particular can secure its leading position with the establishment of new trading platforms. The crypto nation of Switzerland can look to the digital future well equipped.
What are register value rights?A register value right is a right that is registered in a value right register in accordance with an agreement between the parties (the so-called registration agreement). It can only be asserted and transferred to others via this register of uncertificated securities. Accordingly, the transfer of register value rights is possible without a written form requirement (Art. 973d para. 1 Code of Obligations, CO). Register value rights are thus a new electronic form of a security. They can be transferred and traded digitally using blockchain technology. The blockchain guarantees that all debt or membership rights can be issued purely digitally. Namely, all those that could also be issued as classic securities or simple uncertificated securities. A classic example of this is the share token. Registration in the register of uncertificated securities is the digital equivalent of securitizing a right as a physical document. As an electronic register, it enables the registration of rights, which thereby become register value rights.
FAQ – Frequently asked questions
The creditor, not the debtor, has de facto power of disposal over his rights by means of technical procedures. Creditors can view the information and register entries relating to them at any time and check the integrity of the register content relating to them.
The integrity of the value rights register is protected by appropriate technical and organizational measures. For example, by joint management by several independent parties. The blockchain meets these requirements.
The content of the rights, the functioning of the register and the registration agreement are specified in the register. The exact content of the securitized right (amount of the interest, amount of the claim, due date) must be noted here.
A register of value rights must ensure that the creditor can view the information and register entries relating to him without the intervention of third parties. This also includes the integrity of the register contents concerning him.