Cryptocurrency exchange regulation in Switzerland

While Switzerland may not strike everyone as a very progressive country on all counts, when it comes to cryptocurrency regulation Switzerland has definitely taken a very progressive stance compared to most countries. That is good for the industry as a whole, because Bitcoin and cryptocurrencies used to have a slightly bad reputation in some circles, and were associated by some with money laundering, crime etc.

However, a jurisdiction does not get more respectable than Switzerland, so the fact that such a well known financial hub takes a stance for cryptocurrencies and bringing them into the mainstream is likely to have a positive effect on the industry in general.

The regulatory changes in the country, sometimes even called the “Crypto Nation” due to the extent of its favorable view on cryptocurrency consist both of updating several existing laws, as well as passing new laws touching upon the phenomenon. The plans for the future are even bigger, and Heinz Tännler, President of the Swiss Blockchain Federation, has predicted that in 2021, Switzerland will have the most extensive blockchain and cryptocurrency legislation in the entire world.

Anyone looking to regulate a cryptocurrency exchange would therefore do well by considering licensing in Switzerland, where the regulatory certainty is already high, and where the future looks even brighter. Many of the leading companies in the industry are also based in Switzerland and it’s “CryptoValley” Zug (where, among other things, the first Bitcoin ATM was installed as early as 2014 and where municipal fees can be paid in Bitcoin since 2016), such as Facebook’s Libra Association and Ethereum.

Due to the recent changes, legal standards for cryptocurrency exchanges have been set, and even many banks in the country have started viewing cryptocurrency businesses more favorably.

About regulation of cryptocurrencies in Switzerland

The financial regulator in Switzerland is the Swiss Financial Market Supervisory Authority, or FINMA, and all cryptocurrency exchanges must naturally obtain a license from them in order to regulate their operations in the country, as well as be registered as either a Swiss AG (Public limited company) or GMBH (Limited liability company) company.

The regulatory process generally takes between 4 to 6 months.

Requirements for those wishing to obtain a license for a cryptocurrency exchange in Switzerland

Companies interested in obtaining a license for their cryptocurrency exchange in Switzerland must fulfill the following requirements:

• • Registered as a company in Switzerland. The cost of incorporating a GMBH is 5000 CHF (which includes a bank account), and the minimum share capital is 20,000 CHF. In this case the shareholder is listed in a public commercial registry, while a higher minimum share capital of 100,000 CHF is required for a public limited company (AG) where the shareholder can remain anonymous. The company must have at least one shareholder and one director.
  • Have an appropriate organizational structure.
  • Compliance with Anti Money Laundering Act (AMLA) requirements.
  • Good reputation for both the organization and those responsible for it.
  • Ability to assure proper business conduct.
  • Ability to keep track of transactions, identify and report anything suspicious.

The two different licenses relevant to cryptocurrency exchanges

Cryptocurrency exchanges have two different licenses to choose from: a Fintech License and a Banking License. The Banking License allows for unlimited public deposits, but also requires a minimum capital of 10 million CHF, while a Fintech License allows for public deposits up to 100 million CHF, but the minimum capital required is lower. The rule is that licensees must at all times maintain capital amounting to 3% of the deposits made by clients, but in any case, not less than CHF 300,000.

For this reason, the Fintech license is the most relevant license for most of Porat Group’s clients.

Additional information about the Fintech License

The Fintech License allows the holder to both store and trade virtual currencies. The actual management, as well as the domicile, of the company, must be located in Switzerland. Cooperatives are not eligible as Fintech license holders, but the companies must be organized either as a company limited by shares, a partnership limited by shares or a limited liability company.

Documents required in order to apply for the Fintech License

The following documents are required for those who wish to apply for the Fintech License in Switzerland:

• Copies of identification documents; (passports, for at least the shareholder and director)
• Copies of Swiss residence permits for foreign individuals;
• Signed and dated CVs;
• Copies of diplomas and other professional references/documents;
• Swiss criminal record extract;
• Criminal record extracts from the previous country of residence for foreign individuals if they have lived in Switzerland for less than 5 years;
• Extracts from the debt enforcement register;
• Declarations with regards to concluded and pending legal proceedings;
• Supporting documentation describing the internal organization as well as the business activity of the applicant, such as:
  – Business plan including a budget for the next financial 3 years, with a plan for both realistic, optimistic and pessimistic scenarios;
  – Detailed description of how public deposits are held;
  – Details of information for clients pursuant to Article 7a of the Banking Ordinance;
  – Descriptions of any conflict of interest as well as the related measures pursuant to Article 14g of the Banking Ordinance.

Why Switzerland and not another jurisdiction if you are looking to regulate your cryptocurrency exchange?

Switzerland has many advantages compared to most, if not all, other jurisdictions that may be relevant for those looking to regulate a cryptocurrency exchange. Some of those advantages, such as Switzerland being a true pioneer when it comes to the business in general, as well as to cryptocurrency regulation in particular, were already mentioned in the beginning of this post, but we’d also like to add the following advantages:

• Unlike in many other countries, the relevant authorities, such as the FINMA and SBA, in Switzerland are very approachable and encourage personal contacts with them, if you are a regulated company in the country.
• Attractive corporate tax rates.
• Low taxes in several cantons, including in Zug, the center of the cryptocurrency industry.
• Possibilities to be exempted from dividend tax.
• The most relevant and high quality talent pool for the industry can be found in the country.
• Stable economy and political environment.

Sound good?

If you are interested in finding out more about the cryptocurrency regulation requirements in Switzerland, compliance with the rules and regulations there and/or want to start the regulatory process in the country, contact us in order to set up a consultation on the matter.