The Swiss regulator, Financial Market Supervisory Authority (FINMA), issued guidelines for financial institutes looking forward to utilize blockchain for payments. Under the FINMA supervision, blockchain service providers such as exchanges, trading platforms and wallet providers are bound to abide by the guidelines. Following the aforementioned regulatory developments, FINMA has also granted licenses to crypto firms for opening crypto-focused banks in the future.
Seba Crypto AG and Sygnum had outlined their agenda after receiving Switzerland banking and securities dealer licenses. Seba has planned to launch a trading platform for traders and institutions, whereas Sygnum is inclined to offer custody and integrated liquidity platform for cryptos such as bitcoin, Ethereum, etc.
Categorizing all providers under the term virtual asset service providers (VASPs), the guidelines impose existing anti-money laundering laws on VAPs. FINMA elaborated the reason behind not exempting these service providers from existing laws.
According to the regulator, due to anonymity provided by a blockchain, cryptocurrencies and affiliated technologies open doors for the bad actors. Therefore, to prevent terrorists and criminals from financing their negative and illicit intentions, the Financial Action Task Force (FATF) finalized rules and regulations on virtual assets.
This shows that the underlying concern of the Swiss regulator primarily revolves around the illicit activities that are made possible and easy by the use of cryptocurrencies. Comparing the anonymity provided by fiat against cryptos, Kyle Asman, founding partner of BX3 Capital, shared his thoughts with BlockPublisher. In this regard, he said:
It is easier to remain anonymous with fiat currency, since when it comes to cash, there is no trail. This being said, crypto can be easily transferred across borders, however.
As a result of these latest guidelines, VASPs are required to scrutinize identities of both, the customer and owner. Furthermore, necessary business relationships monitoring is to be deployed by VASPs. Upon suspicion of money laundering, Money Laundering Reporting Office Switzerland (MROS), should be reported immediately about the entire case.
Apart from that, VASPs would also be acting as intermediaries to check for discrepancies. For instance, the name of the sender is mandatory to be cross-matched against sanction lists. Similarly, it was suggested that after extracting the information of sender and beneficiary from payment order, the decision to process or return the payment should be made.
Moreover, it was made clear that defined guidelines are applicable to all blockchain-based projects and service providers. Even if payment services are not exclusively blockchain-based, the provision must be followed by blockchain-based companies.
Although there were strict orders to attain and then process the information of parties involved, unsupervised payments were allowed if the wallet of receiver and sender belonged to an institute, supervised by FINMA. Besides, if a client intended to change fiat to digital currency or vice versa, the ownership over their wallet must be disclosed. Additionally, even if a virtual currency is converted in to another crypto, a solid proof of wallet ownership is necessary.
As fraudulent practices are increasing and turning out to be problematic, governments are finding ways to eradicate or decrease the likelihood of such practices through regulations. However, Asman pointed out that while doing so, the governments were not avoiding mistakes and said:
Regulation and enforcement are really the only two ways to stop this from happening. Until we see governments unite to enforce and stop the fraud and criminal activity going on it is going to continue. Part of the problem here is that governments are way behind the curve on this stuff and don’t understand how to enforce—or even write—regulations regarding cryptocurrency.
While the approach adopted by the Swiss government needs time to prove itself, the step taken by FINMA has allowed blockchain developments to take place on the same day. Although participation from Seba and Sygnum is prospective for the fate of cryptocurrency and Swiss crypto users, nothing solid can be deduced for now. As it was the first of its kind decision, we need to wait and observe how crypto market activity in Switzerland is impacted and influenced by it.