Submitted text
The Federal Council is requested to answer the following questions regarding coins and tokens (“tokens” understood as rights that can only be created and transferred by entry in a blockchain or distributed ledger):
1. are there any plans on the part of the federal government to create specific regulatory foundations or a specific regulatory legal framework for coins/tokens, or are the existing legal foundations considered sufficient?
(2) Under Swiss law, rights not evidenced by securities may in principle only be transferred by means of a written declaration of assignment. This applies in particular to so-called uncertificated securities, unless they have been entered into a central depository system and structured as intermediated securities.
Coins/tokens, on the other hand, are transferred exclusively by means of an entry in a decentralized database (distributed ledger or blockchain) and do not qualify as book-entry securities according to common opinion. Are there any plans on the part of the Federal Government to create a legal basis that will enable the legally valid transfer of coins/tokens or, more generally, of rights and other assets by means of an entry on a blockchain in a way other than the informal transfer practiced to date?
3. in what way, if at all, does the federal government plan to legally regulate the basic triage of the application as a non-state currency system (i.e., as long as there is no underlying claim, e.g., bitcoin) from the application with underlying claim (debt or equity tokens, so-called colored coins)?
(4) Various banks, trading systems and other financial intermediaries offer their customers the possibility to acquire Coins/Tokens (in particular Bitcoins) and to “store” them in their securities accounts or to store them on server structures of third-party providers, where the so-called private keys are only known to the financial service provider, but not to the customer, and thus the power of disposal lies with the financial service provider.
Where the bank or the trading venue acquires such coins/tokens for clients, the question arises as to how these assets or the private keys are to be treated in the event of the bankruptcy of a bank, a trading system or a financial intermediary? In particular, it is of interest whether, in the view of the Federal Council, a client has a right of segregation to the private keys, which are usually held in trust, and if not, whether there are plans to anchor such a right of segregation (analogous to the right of segregation for securities) in Swiss law?
REASON
Justification
Everyone is talking about cyber currencies and topics such as bitcoins. So far, there has been little or no discussion – apart from the opportunities that these new technologies bring with them – of the associated systemic and individual risks and how these new developments fit into our existing legal system. At the end of September 2017, the Swiss Financial Market Supervisory Authority stated in a supervisory notice that coin or token offerings may fall under existing financial market laws, depending on the design of the coins/tokens, although it would depend on the design in each individual case. The purpose of this interpellation is to shed light on further legal issues and risks of cybercurrencies.
Statement of the Federal Council of January 31, 2018
Developments in blockchain technology represent an important aspect of digitalization, especially in the financial sector. Cryptocurrencies (e.g. Bitcoin) and new financing methods (so-called “Initial Coin Offerings, ICOs”) have recently attracted public attention.
Regarding questions 1) and 3):
ICOs are a new form of public capital raising via blockchain technology. On the one hand, financial innovations are indispensable for the competitiveness of the Swiss financial center. A more efficient allocation of capital by breaking up the value chain can have positive effects on economic growth. On the other hand, risks (e.g. reputational risks from dubious free riders) must be limited and unjustified regulatory favoritism over traditional financing methods must be avoided.
The concrete design of the coins/tokens differs greatly in individual cases in functional and economic terms. For example, there are coins/tokens that are intended to represent a real value (e.g. a precious metal), enable the purchase of a service or may contain the characteristics of a currency. Depending on the respective design of an ICO, there are different points of contact with supervisory law (e.g. money laundering and terrorist financing, banking law, securities trading, collective investment scheme law).
Currently, there are neither international standards nor specific regulations in Switzerland regarding ICOs. FINMA has already taken action in individual cases with enforcement measures for mock cryptocurrencies and has published a supervisory notice on ICOs; it is currently undertaking further clarifications. The FDF is analyzing the current developments in Switzerland. In principle, the Federal Council is of the opinion that the regulatory requirements should ensure legal certainty and, within this framework, provide clear guidelines for a legal, individual and risk-appropriate design of an ICO.
Regarding questions 2) and 4):
The Federal Council shares the view that a wide range of legal questions arise in connection with Bitcoins and other cybercurrencies. In part, these questions go beyond financial market law. In particular, they also concern aspects of general private law and public law. Moreover, since blockchain transactions regularly take place across borders, international private law implications must also be considered. The questions highlighted in the interpellation regarding the (private) law treatment of the transfer of Coins/Tokens and the bankruptcy law treatment of private keys that allow access to Coins/Tokens are just two examples of key issues related to cryptocurrencies. These questions show that the use of blockchain technology or cryptocurrencies entails not only opportunities but also a variety of risks. Against this background, the Federal Council intends, in addition to the work already underway, to analyze in greater depth the questions raised (and others) from the areas of financial market law, but also beyond. These will be addressed, among other things, in the context of the work carried out by the Federal Council in its statement on the Motion Béglé (17.3818) mentioned working group under the leadership of the Federal Department of Finance. This working group will also involve the industry.