On the Federal Council Report

The federal council published its 170-page report on the legal foundations of the blockchain in Switzerland. It incorporates the findings of the consultation that took place in September and to which the Bitcoin Association also provided some inputs. All in all, it is great that the Swiss government not only recognizes the potential of the blockchain, but also applies the right strategy for allowing the blockchain-ecosystem to flourish.

In particular, the report focuses on removing barriers and establishing legal certainty in various legal areas except taxes, which are planned to be looked at in 2019. It does not propose a specific “blockchain law” like Liechtenstein and it does not try to pro-actively steer the development into a specific direction. This is the right approach and in the Swiss tradition of a principles-based legal system that ensures freedom of innovation and a sound foundation for economic prosperity.

A particularly interesting idea is the proposal to create a new exchange category for crypto exchanges that list security tokens. Before 2016, Finma could have allowed such exchanges at its own discretion. But then, the Financial Market Infrastructure Act was introduced in order to make the Swiss regulatory environment compatible with that of the European Union. It mandated that exchanges must be one of three specific types (stock exchange, mutual trading facility, or organized trading system). Unfortunately, none of these types fits the needs of crypto exchanges very well, making it necessary to create a new type in order to allow such exchanges to exist in Switzerland. This shows once again how the traditional Swiss approach of having principle-based laws that give a lot of discretion to citizens and regulatory agencies are much more innovation-friendly than overly detailed European-style laws.

Another interesting question that we discussed before in this blog is the storage of crypto assets for clients and what happens to them in the case of a default. Here, the report is not as optimistic as it could be regarding the current legal situation, but we welcome its conclusion that a legal clarification is desired and that clients should get their assets back when the custodian defaults, assuming the assets can be clearly identified as belonging to the clients.