Answer ... Virtual currencies are governed by:
- the Anti-Money Laundering Act;
- the Banking Act, if they involve a redemption claim to a fiat currency or a bank precious metal (commodity);
- the Collective Investment Schemes Act (collective investment schemes);
- the Banking Act (deposit) or the Financial Institutions Act (derivative), if they involve a redemption claim to a basket of fiat currencies, bank precious or non-bank precious metals or other virtual currencies; and
- the Financial Market Infrastructure Act, if they are issued through a payment system whose operator is responsible for the clearing and settlement of payment obligations.
Answer ... Entities that provide services relating to virtual currencies are subject to the Anti-Money Laundering Act and, depending on the features of the virtual currencies and the type of activity, the Banking Act, the Collective Investment Schemes Act, the Financial Market Infrastructure Act, the Financial Institutions Act and the Financial Services Act (see question 1.1). Accordingly, they must:
- become a member of a self-regulatory organisation according to the Anti-Money Laundering Act; or
- apply for a licence under one of the other financial market laws mentioned above.
Answer ... In Switzerland, the Financial Market Supervisory Authority (FINMA) is responsible for the prudential supervision of the financial market and the enforcement of financial market laws. Enforcement activities are directed to licence holders and others acting without authorisation from FINMA where such authorisation is required under financial market law. FINMA has extensive powers, such as the power to:
- take precautionary measures (eg, block accounts, impose trading restrictions, limit the scope of business) or impose measures to ensure compliance with the law (eg, ordering measures);
- withdraw authorisation;
- liquidate unauthorised companies;
- issue industry and activity bans;
- order the disgorgement of profits generated illegally; and
- publish final rulings naming those involved.
Providing false information to FINMA and acting negligently or wilfully without authorisation, recognition, a licence, registration or affiliation with a self-regulatory organisation are subject to sanctions such as a custodial sentence, monetary penalties and fines imposed by the Federal Department of Finance or the Office of the Attorney General of Switzerland (and potentially a custodial sentence or custodial measures) under the Financial Market Supervision Act.
Answer ... FINMA applies the relevant financial market laws in a technology-neutral way and focuses on the economic function and purpose of virtual currencies (‘substance over form’). FINMA follows the principle of ‘same risks, same rules’, while taking into account the features of each specific virtual currency project.
Answer ... In 2019, FINMA concluded more than 20 enforcement actions against projects relating to cryptographic tokens; however, not all related to virtual currencies. Most enforcement actions concerned:
- non-compliance with the Anti-Money Laundering Act;
- inadequate corporate governance and risk management;
- breach of the market conduct rules; and
- various business practices whereby client funds were solicited on the financial market without the requisite licence (FINMA Annual Report 2019).