For centuries, elites across Europe and the world have flocked to Swiss banking as a safe haven for their assets.
With the digital revolution continuing and cryptocurrencies gathering momentum, Switzerland is evolving its reputation for banking security and privacy in the digital environment.
As events show, however, the switch to digital is throwing up some age-old challenges both for Swiss regulators and crypto businesses – as well as underlining the importance of having the right protections in place.
Famously divided into 26 “Cantons”, or municipal areas with wide-ranging autonomy, Switzerland is one of the world’s most crypto-friendly countries. There are more Bitcoin-enabled ATMs in Switzerland per capita than anywhere else on Earth, and crypto acceptance is widespread.
The city of Zug, for instance, made it possible to pay taxes and fines using bitcoin in 2016, while it’s legal to pay for Swiss property and other high-ticket items using crypto. Across the board, Switzerland boasts one of the widest crypto acceptance networks anywhere.
This degree of crypto-friendliness has been backed up by a solid regulatory regime. Crypto exchanges such as Coinbase and Kraken are active in the Swiss market, overseen by Swiss regulators FINMA and SFTA just like other financial institutions.
Indeed, one distinguishing feature of the Swiss crypto scene is the extent to which existing regulations related to physical currencies such as the Swiss Franc and US dollar have been extended to crypto.
In 2019, for instance, the Swiss Federal parliament decreed that crypto trading and payments would be subject to the same regulatory requirements as traditional currencies, while a 2020 law ensured that crypto activity is covered by Swiss Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) legislation.
A third wave of legislation, planned for early 2022, is designed specifically to enable crypto payments for retail purposes and extended consumer protection for crypto payments.
Regulation for good?
Such an extensive regulatory regime sounds reassuring – and it’s this solid regulation which has encouraged the growth of crypto-focused banks such as SEBA Bank, and local Swiss crypto exchanges like Bity.
Crypto storage is also advanced in Switzerland, with many users and investors choosing the more secure “cold storage” (completely disconnected from a PC or device) and hardware options for their crypto-wallets, rather than internet-enabled digital wallets.
To a large extent, however, Switzerland’s rapid roll-out of crypto regulation has been informed by a number of scandals in recent years.
In 2018, Bancor announced that hackers had stolen $23.5 million in crypto assets; in the same year, regulator FINMA blocked $2 million of crypto transfers via Swiss-based Quid Pro Quo citing AML and CTF legislation.
Most recently, hugely secretive Swiss crypto exchange Shapeshift announced that it will morph into a user-owned platform to enable crypto swaps, rather than continue as a regulated exchange. Some commentators believe this move is being made to avoid increasing scrutiny from local regulators.
As we have argued earlier in this series, AML in crypto has special challenges, including difficulties identifying the counterparties in a transaction, or monitoring the cash-out methods used to transfer value from crypto to traditional fiat currencies.
This means that companies across Europe, including Switzerland, will increasingly need to include crypto-specific approaches and software routines if they are to meet regulators’ increasingly stringent demands for transaction monitoring, oversight and flow of funds analysis.
Whether you’re doing business in Switzerland or anywhere else in Europe, responding to new regulatory requirements related to crypto is vital.