Secu­ri­ty Token: Switzer­land intro­duces regulation

Some­thing’s going on with the regulators.

After the Ger­man Fed­er­al Min­istry of Finance and the Fed­er­al Min­istry of Jus­tice and Con­sumer Pro­tec­tion issued a key issues paper for the reg­u­la­to­ry treat­ment of Dig­i­tal Secu­ri­ties and Secu­ri­ty Tokens while ensur­ing investor pro­tec­tion, Switzer­land wants to intro­duce uni­form leg­is­la­tion for Secu­ri­ty Tokens.

It is planned that this draft bill will enter into force on Jan­u­ary 1, 2020. It’s ques­tion­able whether and what will be added or changed after the con­sul­ta­tion phase that lasts until June 28, 2019.

The focus of the Swiss reg­u­la­tor is shift­ing from pri­ma­ry mar­kets to sec­ondary mar­kets for blockchain based Secu­ri­ty Tokens.

Here are the key points:

1,
Intro­duc­tion of a new type of uncer­tifi­cat­ed trans­fer­able secu­ri­ties: “DLT uncer­tifi­cat­ed secu­ri­ties”. These secu­ri­ties will be entered into a blockchain reg­is­ter upon issue. This reg­istry must ful­fil very high require­ments regard­ing data integri­ty, func­tion­al­i­ty and trans­paren­cy. Of course, Swiss law applies to this new form of secu­ri­ties, they have the same rights, duties, and func­tions such as “tra­di­tion­al” secu­ri­ties. This means that, like any oth­er cer­ti­fied secu­ri­ty, it can be trans­ferred, sub­mit­ted, pledged and declared invalid under Swiss law. How­ev­er, under Swiss law, it will be pos­si­ble to issue Secu­ri­ty Tokens that do not meet these require­ments, even Pay­ment and Util­i­ty Tokens may be blockchain based secu­ri­ties if they con­tain a claim.

2,
This new form of blockchain based secu­ri­ties forms the basis for a new cat­e­go­ry of exchanges. These trad­ing venues, which may be called “DLT exchanges”, “DLT trad­ing sys­tems”, or “DLT trad­ing facil­i­ties”, offer the mul­ti­lat­er­al exchange of this new type of secu­ri­ties between dif­fer­ent mar­ket par­tic­i­pants. You must also allow legal and nat­ur­al per­sons, as well as licensed com­pa­nies, ensure that pay­ments are processed prop­er­ly and that secu­ri­ties are held in safe custody.

The same and very strict legal pro­vi­sions apply to the for­ma­tion, reg­is­tra­tion, and oper­a­tion of these trad­ing venues as well as for “tra­di­tion­al” exchanges, but in cer­tain cas­es, they may pro­vide relief for small­er oper­a­tors. This must then be decid­ed on a case by case basis. Of course, these new secu­ri­ties are sub­ject to the same insid­er trad­ing and mar­ket manip­u­la­tion bans as tra­di­tion­al secu­ri­ties list­ed and trad­ed on stock exchanges. Of course, inter­me­di­aries are also sub­ject to all com­pli­ance require­ments in the field of AML.

3,
OTFs, so-called “orga­nized trad­ing sys­tems” offer­ing mul­ti­lat­er­al or bilat­er­al trad­ing and dis­cre­tionary or non-dis­cre­tionary trad­ing, may be oper­at­ed by any autho­rized invest­ment firm act­ing on its own account at short notice. The annu­al turnover thresh­old of CHF 5 bil­lion for trad­ing on own account does not apply here to OTFs.

4,
Blockchain-based secu­ri­ties, which can be unique­ly assigned to cus­tomers and are held by the bank, ben­e­fit from insol­ven­cy laws like all oth­er assets held in cus­tody. As a fur­ther con­se­quence, this also means that Swiss law gen­er­al­ly con­sid­ers Pay­ment and Util­i­ty Tokens as pub­lic deposits when they are in custody.

 

State­ment BMCP:

In order to main­tain its rep­u­ta­tion as the world’s friend­liest blockchain nation, this new leg­is­la­tion will respond to mar­ket demands while solv­ing legal issues that have tak­en too long to answer. Switzer­land has rec­og­nized the oppor­tu­ni­ties offered by this new form of secu­ri­ties and at the same time ensures a good bal­ance between super­vi­sion and self-reg­u­la­tion and is also try­ing to give oppor­tu­ni­ties to small marketplaces.

 

Ques­tion: Will this be the basis for the new glob­al stan­dard for sec­ondary mar­kets of Secu­ri­ty Tokens?

 

Pho­to Cred­it: Schweiz­erische Eidgenossenschaft