Fintech in Switzerland 2024

Fintech in Switzerland 2024

FINTECH 2024

SWITZERLAND

Luca Dal Molin, Daniel Haeberli, Stefan Oesterhelt, Richard Stäuber, Manuel Baschung, Alexander Wherlock

(Homburger)

FINTECH LANDSCAPE AND INITIATIVES

General innovation climate

1. What is the general state of fintech innovation in your jurisdiction?

In Switzerland, the government’s general attitude towards fintech, and blockchain technology in particular, is very positive. Both the Swiss federal government and the Swiss Financial Market Supervisory Authority (FINMA) recognize the potential that fintech and blockchain technology offer to the Swiss financial services industry and various other areas of the economy. Switzerland sees an opportunity to take a global lead in this sector, evidenced by recently enacted legislation and various governmental initiatives in the fintech sphere. Switzerland is also increasingly becoming an international hub for research in the areas of fintech and technical innovation in general. Google, IBM, Disney, Thomson Reuters and the Federal Institute of Technology ETH have all established research centers in and around Zurich. Further, the University of Zurich has formed the UZH Innovation Hub, a platform for innovation and entrepreneurship, with a focus on digitization in particular. Numerous Swiss financial service providers and major Swiss banks, such as Credit Suisse and UBS have established innovation centers and have expanded their digital offerings in recent years. With SIX Swiss Exchange and BX Swiss, Switzerland also has two trading venues that are becoming increasingly attractive for the issuance of crypto-related exchange-traded products, with 21Shares and Hashdex – two major issuers of crypto-related structured products – generating a considerable trading volume in Switzerland. Finally, in late 2021, FINMA granted SIX Digital Exchange (SDX), a license to operate a stock exchange and a central securities depository for digital assets in Switzerland. Under this license, SDX offers a fully regulated trading, settlement and custody infrastructure based on distributed ledger technology for digital securities.

Government and regulatory support

2. Do government bodies or regulators provide any support specific to financial innovation? If so, what are the key benefits of such support?

Swiss government bodies and regulators have implemented various initiatives aiming to enhance financial innovation in Switzerland. The most comprehensive project is Digital Switzerland, which coordinates various private initiatives and provides government support. Further, FINMA has established a designated fintech desk as a competence center within FINMA for fintech-related applications and enquiries.

In 2018, FINMA issued specific guidelines for enquiries regarding the regulatory framework for initial coin offerings (ICOs) under which FINMA specified its practice regarding the regulatory treatment of ICOs (FINMA Guidelines). In a supplement to the FINMA Guidelines published in 2019, FINMA provided further guidance on the treatment of stablecoins under the financial market laws of Switzerland. Finally, in 2021, the Distributed Ledger Technology Law (the DLT Law) entered into effect in Switzerland. The DLT Law constitutes an ‘umbrella legislation’ that introduces a new concept of ‘DLT securities’ under the Swiss Code of Obligations allowing for the tokenization of rights, claims and financial instruments. In addition, the DLT Law provides for the introduction of a new licensing category as a DLT trading venue under the Financial Market Infrastructure Act and certain clarifications relating to the treatment of cryptocurrencies in Swiss insolvency proceedings.

The Swiss National Bank (SNB) has done substantial research and carried out feasibility studies in relation to the potential use of digital central bank money. This new form of digital central bank money may allow the settlement of ‘tokenized assets between financial institutions. A first feasibility study as carried out under the project name Helvetia between the SNB and the SIX Group and successfully demonstrated the feasibility of settling tokenized assets with wholesale central bank digital currencies. In a second phase of Project Helvetia, SNB and SIX Group, together with Citi, Credit Suisse, Goldman Sachs, Hypothekarbank Lenzburg and UBS, explored and further analyzed settlement of interbank, monetary policy and cross-border transactions on the test systems of SDX, the Swiss real-time gross settlement system – SIX Interbank Clearing – and core banking systems.

FINANCIAL REGULATION

Regulatory bodies

3. Which bodies regulate the provision of fintech products and services?

Switzerland has not enacted a comprehensive framework governing the provision of fintech or crypto-related financial services. Such activities are subject to the general Swiss financial market laws and regulatory licensing requirements. The Swiss Financial Market Supervisory Authority (FINMA) is the competent prudential supervisory authority for banks, securities firms, asset managers and insurance companies. Further, various recent initial coin offerings (ICOs) were executed through foundations domiciled in Switzerland. Foundations incorporated under the laws of Switzerland are supervised by separate supervisory authorities at communal, cantonal and federal levels. Foundations established for the purpose of executing an ICO are typically supervised by the Federal Authority for Foundation Supervision.

Regulated activities

4. Which activities trigger a licensing requirement in your jurisdiction?

Regardless if business activities performed by a fintech company qualify as a regulated activity in Switzerland, they will need to be assessed on a case-by-case basis. Fintech companies often fall into one of the following licensing categories.

Banking license

Under the Federal Act on Banks and Savings Institutions (FBA), only licensed banks are permitted to accept deposits from the public on a professional basis. Pursuant to the FBA and the Federal Ordinance on Banks and Savings Institutions, the acceptance and storage of cryptoassets, as well as related custody services, qualify as regulated deposit-taking. Therefore, any fintech company that accepts deposits or provides custody services in relation to cryptoassets, on a professional basis, will – subject to certain exemptions – require a banking license under the FBA. In addition to the regular banking license, permitting the holder to engage in regulated banking activities, the FBA provides for a (simplified) fintech license. The fintech license permits the respective license holder to accept deposits up to the threshold of 100 million Swiss francs or cryptoassets, provided that the deposits or cryptoassets are not invested and are not interest-bearing. If the maximum deposit threshold of 100 million Swiss francs is exceeded, the company must notify FINMA within 10 days and must apply for a regular bank license within 90 days. With the fintech license, companies not engaging in the classic banking business (interest rate differential business), for example, by using short-term deposits for long-term lending or investment activities, now have a viable regulatory alternative under which such companies can implement their business model.

Securities firm license

Under the Federal Act on Financial Institutions (FinIA), only licensed securities firms are permitted to engage in regulated securities dealing. A fintech company will qualify as a securities firm, requiring a license under FinIA, if it engages, on a commercial basis, in either:

• dealing in securities in its own name but on its clients’ account;
• dealing in securities on a short-term basis on its own account and thereby either:
• impacting the systemic stability of the Swiss financial market; or
• being directly admitted to a trading venue within the meaning of the Financial Market Infrastructure Act (FMIA); or
• market-making activities.

In light of the outlined legal framework, fintech companies will typically require a license as a securities firm, if their business model includes trading of digital assets, qualifying as ‘securities’ within the meaning of the FMIA, for the account of their clients. Under Swiss law, securities are financial instruments that are standardized and suitable for mass trading. Pursuant to FINMA’s practice, to the extent that digital assets grant a claim against the relevant issuer, namely derivative financial instruments, such as futures, relating to cryptocurrencies, that are suitable for mass trading, such digital assets will qualify as securities within the meaning of Swiss law.

Licensing requirements under the Financial Market Infrastructure Act

Operating a platform that offers multilateral trading in securities within the meaning of the FMIA in Switzerland requires a license as a trading venue (stock exchange or multilateral trading facility). A trading venue is an institution for multilateral trading in securities whose purpose is the simultaneous exchange of bids between several participants and the conclusion of contracts based on non-discretionary rules. Fintech companies operating a platform that offers trading in digital assets may require a license as a trading venue, if the instruments traded on such platform qualify as ‘securities’ within the meaning of the FMIA (see also above). To the extent the financial instruments for which trading is offered do not qualify as securities, such trading systems may, depending on the relevant set-up, qualify as an organized trading system, which pursuant to the FMIA, may only be operated by Swiss-licensed banks and securities dealers. It should also be noted that trading venues domiciled outside Switzerland require a formal recognition by FINMA, if they admit Swiss-supervised entities to their trading facilities. Finally, in 2021, a new license category, the distributed ledger technology (DLT) trading venue, was introduced under the FMIA. Licensed DLT trading venues are authorized to provide services in the areas of trading, clearing, settlement and custody of ledger-based securities to both regulated and unregulated financial market participants, including retail investors.

Consumer lending

5. Is consumer lending regulated in your jurisdiction?

Generally, the granting of loans on a commercial basis is considered financial intermediation, which is subject to the Federal Anti-Money Laundering Act (AMLA). Thereunder, the financial intermediary is, namely, subject to the duty:

• to become a member of a self-regulatory organization;
• to determine the identity of the contracting party and the beneficial owner of the transferred assets; and
• to clarify the financial background and purpose of the business relationship or transaction, if the financial intermediary becomes aware of indications that the funds in question were obtained through criminal activities or are intended to finance terrorism.

Further, the Federal Act on Consumer Credits (CCA) stipulates the general substantive rules governing consumer credits and sets out the supervisory licensing requirements for providers of consumer credits in Switzerland. Under the CCA, consumer credit providers (and arrangers of consumer credits) are subject to a number of obligations, namely the duty to determine the creditworthiness of the consumer, formal requirements applicable to the credit agreements, rules governing the calculation of interest payments and respective maximum interest thresholds. The CCA sets out sanctions in the case of a violation of such duties. The provision of consumer loans to consumers in Switzerland is subject to a licensing requirement. The licensing requirement is triggered by the provision or the solicitation of a consumer credit to a consumer domiciled in Switzerland. To obtain a license under the CCA, the credit provider must:

• ensure an irreproachable conduct of business operations in Switzerland;
• have sufficient education and experience in the area of financial services; and
• have adequate liability insurance or provide respective securities.

Further, the credit provider must hold common equity tier 1 capital in the higher amount of:

• 8 percent of the credit outstanding in Switzerland; or
• at least 250,000 Swiss francs.

Secondary market loan trading

6. Are there restrictions on trading loans in the secondary market in your jurisdiction?

The trading of loans or participations therein on the secondary market is not subject to a licensing requirement in Switzerland.

Collective investment schemes

7. Describe the regulatory regime for collective investment schemes and whether fintech companies providing alternative finance products or services would fall within its scope.

In Switzerland, the offering of units in a collective investment scheme is governed by the Federal Act on Collective Investment Schemes (CISA) and the FinIA, with licensing requirements applying both at the level of the fund, the fund management company and the asset manager for collective investment schemes. Pursuant to CISA, a financial instrument qualifies as a collective investment scheme for the purposes of Swiss law if it meets the following five criteria: (1) assets, (2) that are raised from at least two independent investors, (3) for the purpose of being collectively managed, (4) for the account of such investors, (5) whereby the investors’ investment needs are met on an equal basis.

Typically, the products offered by fintech companies, such as peer-to-peer lenders, marketplace lenders or crowdfunding platforms, do not qualify as collective investment schemes and will not be subject to CISA. In contrast, in cases where the business model of a fintech company involves the pooling of funds or risks in connection with an investment, such activities will likely be subject to CISA and the requirements set out thereunder.

Alternative investment funds

8. Are managers of alternative investment funds regulated?

The Alternative Investment Fund Managers Directive is not applicable in Switzerland. However, pursuant to the FinIA, companies, managing funds and collective investment schemes, in their own name but for the account of its clients, require a license as a fund management company. In addition, asset managers providing asset and risk management services to collective investment schemes require a license as a manager of collective assets and are subject to prudential supervision by FINMA. To the extent that the managed collective investment schemes are limited to qualified investors and the assets under management of the investment manager do not exceed 100 million Swiss francs or 500 million Swiss francs and the investments do not include leveraged financial instruments, the respective investment manager is exempt from the licensing requirement under the FinIA.

Peer-to-peer and marketplace lending

9. Describe any specific regulation of peer-to-peer or marketplace lending in your jurisdiction.

Swiss law does not provide for specific regulations applicable to peer-to-peer or marketplace lending. However, to the extent that a company operating a lending platform accepts and forwards funds committed to the platform, the operating fintech company is typically subject to the AMLA and the requirements set out thereunder, such as the duty:

• to become a member of a self-regulatory organization;
• to determine the identity of the contracting party and the beneficial owner of the transferred assets; and
• to clarify the financial background and purpose of the business relationship or transaction, if the financial intermediary becomes aware of indications that the funds in question were obtained through criminal activities or are intended to finance terrorism.

Further, if loans are granted to consumers over the platform, the loans will be subject to the Federal Act on Consumer Credits and the fintech company operating the platform may – depending on the specific set-up – qualify as an arranger of consumer credits, requiring a license under the CCA.

Crowdfunding

10. Describe any specific regulation of crowdfunding in your jurisdiction.

Crowdfunding is not subject to specific legislation in Switzerland but is governed by the general Swiss financial market laws. In its fact sheet on crowdfunding FINMA provided guidance on the regulatory treatment of crowdfunding platforms. Pursuant to FINMA’s guidance, as a general rule, crowdfunding platforms are not subject to a licensing requirement in Switzerland, if the platform operator does not accept and channel the funds through its own accounts. In contrast, to the extent that the operator of a crowdfunding platform accepts funds exceeding 1 million Swiss francs (below such threshold the operator is exempt from the licensing requirement), rather than forwarding them to the borrower within 60 days and in consequence holds such funds in its own account for a longer period (for instance, to ensure that the amount is available at the end of a lengthy financing period), the operator is deemed to be engaging in regulated deposit-taking requiring a banking license under the FBA. To the extent the funds do not exceed 100 million Swiss francs and such deposits are neither invested nor interest-bearing, the crowdfunding platform can be operated under a fintech license pursuant to the FBA. In addition to potential licensing requirements, provided the platform operator channels funds through its accounts, the operator will be engaging in financial intermediation, subject to the Swiss anti-money laundering framework. Finally, it should also be noted that an entity raising funds for its own account over a crowdfunding platform may – depending on the specific set-up – be deemed to be accepting deposits within the meaning of the FBA. To the extent that the outstanding loans exceed 1 million Swiss francs, the borrower under a crowdfunding platform, accepting funds from numerous lenders, may be subject to the licensing requirements stipulated under the FBA.

Invoice trading

11. Describe any specific regulation of invoice trading in your jurisdiction.

Invoice trading and factoring is not specifically regulated in Switzerland. Invoice trading and factoring generally do not require a license under the financial market laws of Switzerland. In addition, invoice trading is generally not deemed to constitute financial intermediation subject to the Swiss anti-money laundering framework, whereas it will have to be determined on a case-by-case basis whether the underlying and acquired claims results from an activity subject to Swiss anti-money laundering regulations.

Payment services

12. Are payment services regulated in your jurisdiction?

European Union Directive (EU) 2015/2366 (revised Payment Services Directive) is not applicable in Switzerland. Under the FMIA, an entity that operates a payment system (namely, a facility that clears and settles payment obligations based on uniform rules and procedures) is subject to a licensing requirement in Switzerland, provided:

• the licensing requirement is necessary for the proper functioning of the Swiss financial market or the protection of financial market participants; and
• the payment system is not operated by a licensed bank.

Licensed payment system providers are further subject to reporting obligations towards the Swiss National Bank (SNB). The SNB also has the regulatory powers to subject foreign payment systems that are of systemic relevance to Switzerland to its supervision. As a licensing requirement will only apply under the FMIA, to the extent a payment system is of systemic relevance in Switzerland, fintech companies providing payment services will typically not be subject to a licensing requirement in Switzerland. However, the provision of payment services generally qualifies as financial intermediation subject to the Swiss anti-money laundering framework.

Open banking

13. Are there any laws or regulations introduced to promote competition that require financial institutions to make customer or product data available to third parties?

Swiss law does not provide for specific regulations applicable to open banking. In Switzerland, open banking applications must adhere to the general banking secrecy, data protection and regulatory outsourcing requirements. While not widely applied and implemented in Switzerland, there are various industry initiatives monitoring the relevant developments. Notably, the Swiss Bankers Association has announced that it is actively monitoring the technical innovations in the open banking domain and intends to, together with market participants, contribute to the establishment of framework conditions that facilitate business models based on open banking and thus increase the competitiveness of Switzerland’s financial center.

Robo-advice

14. Describe any specific regulation of robo-advisers or other companies that provide retail customers with automated access to investment products in your jurisdiction.

Swiss law does not provide for specific regulation applicable to robo-advisers, therefore, robo-advisers and the fintech companies operating such applications are subject to the general financial market laws in Switzerland. Whether or not a robo-adviser is subject to a licensing requirement in Switzerland depends on the specific activities performed and services offered by the robo-adviser. Typically, robo-advisers provide their services in cooperation with a licensed bank. Under such a set-up, the client will be onboarded by a third-party deposit bank holding the relevant client assets. The robo-adviser is then granted power of attorney over such assets to submit instructions to the relevant deposit bank to execute the transactions based on the automated investment decision rendered by the robo-adviser. In such a set-up, the robo-adviser will be rendering discretionary asset management services within the meaning of the FinIA. A robo-adviser, respectively the fintech company operating the robo-adviser, will, therefore, qualify as a regulated asset manager requiring a license under the FinIA. In contrast, to the extent that the robo-adviser only provides investment advisory services (namely, by submitting investment proposals to the client based on its algorithms), the robo-adviser will not be subject to a licensing requirement in Switzerland. Both discretionary asset management and investment advice – depending on the specific set-up – qualify as a financial service within the meaning of the Federal Act on Financial Services (FinSA). As a consequence, the robo-adviser and the fintech company operating such robo-adviser will have to adhere to the ongoing conduct, client segmentation, documentation and organizational duties set out under the FinSA.

Insurance products

15. Do fintech companies that sell or market insurance products in your jurisdiction need to be regulated?

The provision of insurance services in Switzerland requires a license under the Federal Insurance Supervisory Act (ISA). The provision and the solicitation of insurance contracts and services is comprehensively regulated under the ISA. Therefore, for fintech and insurtech companies providing services under which the (monetary) risk in relation to certain events is transferred to a third party against the payment of a premium, it will have to be determined whether such services are subject to the ISA and the requirements set out thereunder.

Credit references

16. Are there any restrictions on providing credit references or credit information services in your jurisdiction?

The provision of credit references or credit information is not specifically regulated under the laws of Switzerland and such services are generally not subject to a general regulatory licensing requirement. However, any company providing credit information must comply with the Swiss Federal Act on Data Protection, which applies not only to natural persons but also to legal entities. Further, the gathering of information from non-public sources may qualify as private detective services, which – depending on the specific set-up – may be subject to licensing requirements in certain cantons. Further, the cross-border provision of private detective services may trigger reporting obligations to the Swiss Foreign Department under the Federal Act on Private Security Services Abroad.

CROSS-BORDER REGULATION

Passporting

17. Can regulated activities be passported into your jurisdiction?

No passporting of regulated activities into Switzerland is possible.

Requirement for a local presence

18. Can fintech companies obtain a license to provide financial services in your jurisdiction without establishing a local presence?

The provision of financial services into Switzerland on a cross-border basis is not generally subject to a local presence requirement, with certain qualifications and exceptions depending on the types of regulated activities (eg, activities related to insurance and insurance brokerage; or the fact that the marketing of units in a foreign collective investment scheme to investors in Switzerland may require the appointment of a Swiss representative and a Swiss paying agent for that collective investment scheme).

At the level of prudential regulation, a foreign fintech company will generally require a Swiss license only if it has a physical presence in Switzerland that exceeds certain de minimis thresholds.

At the level of conduct regulation, the provision of financial services within the meaning of the Federal Act on Financial Services as well as the marketing of collective investment schemes and structured products to clients or investors in Switzerland is a regulated activity even if carried on without a physical presence in Switzerland (subject to reverse solicitation and other exemptions) and may require the registration of client advisers in Switzerland.

SALES AND MARKETING

Restrictions

19. What restrictions apply to the sales and marketing of financial services and products in your jurisdiction?

When marketing financial products, such as investment funds and structured products, the local Swiss rules on the marketing of such products must be complied with (e.g, prospectus requirements under Swiss law).

CRYPTOASSETS AND TOKENS

Distributed ledger technology

20. Are there rules or regulations governing the use of distributed ledger technology or blockchains?

While there are no general rules or regulations governing the use of distributed ledger technology or blockchains (and thus the general laws apply), on 25 September 2020, the Swiss Parliament approved the Law on Distributed Ledger Technology (the DLT Law). The DLT Law constitutes an ‘umbrella legislation’ that introduces a new concept of so-called ‘DLT securities’ under the Swiss Code of Obligations allowing for the tokenization of rights, claims and financial instruments. In addition, the DLT Law provides for an introduction of a new licensing category – a DLT trading venue – under the Financial Market Infrastructure Act (FMIA) and certain clarifications relating to the treatment of cryptocurrencies in Swiss insolvency proceedings. The amendments to the Swiss Code of Obligations and the Federal Act on Intermediated Securities set out under the DLT Law, which enables the creation of ledger-based DLT securities, entered into force on 1 February 2021. Finally, during its meeting on 18 June 2021, the Swiss Federal Council enacted the remaining provisions of the DLT Law, which, together with the implementing ordinance, entered into force on 1 August 2021.

Cryptoassets

21. Are there rules or regulations governing the promotion or use of cryptoassets, including digital currencies, stablecoins, utility tokens and non-fungible tokens (NFTs)?

As there are few specific rules or regulations governing the promotion or use of cryptoassets, the regulatory consequences depend on the nature of the asset and the activity.

First, an offer and sale of utility tokens, asset tokens and stablecoins may become subject to offer or sales regulations if the tokens in question constitute securities within the meaning of Swiss law. Sales activities relating to tokens that qualify as securities may in particular trigger:

• Swiss securities firm license requirements under the Federal Act on Financial Institutions (FinIA);
• Swiss trading platform regulations under the FMIA; or
• Swiss prospectus requirements and further regulations in connection with financial services under the Federal Act on Financial Services (FinSA).

Under the Swiss Financial Market Supervisory Authority (FINMA) ‘Guidelines for enquiries regarding the regulatory framework for initial coin offerings’ of February 2018 and supplemented on 11 September 2019, the following three categories of tokens can be distinguished (even though tokens may also fall into more than one of these three basic categories):

• Payment tokens (pure cryptocurrencies): tokens that are intended to be used, now or in the future, as a means of payment for acquiring goods or services or as a means of money or value transfer. They do not give rise to any claims towards an issuer or a third party and to date are not treated as securities by the Swiss Financial Market Supervisory Authority (FINMA). The question of whether pure cryptocurrencies should nevertheless be treated as ‘financial instruments’ and as such subject to the regulation of financial services as set out in the FinSA remains unresolved (but given the wording of the FinSA, we believe that the question should be answered in the negative).
• Utility tokens: tokens that are intended to provide access digitally to an application or service by means of a DLT-based infrastructure. Subject to certain restrictions, utility tokens that neither fully nor partially serve investment purposes are currently not treated as securities by FINMA.
• Asset tokens: represent assets such as a debt or an equity claim against the issuer (such as a share in future company earnings or future capital flows). Being in terms of their economic function analogous to equities, bonds or derivatives, such tokens are generally treated as securities. Stablecoins and tokens that enable physical assets to be traded on a blockchain infrastructure may also fall into this category.

Second, and even with regard to cryptoassets that do not qualify as securities, a variety of regulatory licenses may be relevant. In particular, only licensed banks are permitted to accept deposits from the public on a professional basis. Regulated deposit-taking may become an issue for service providers offering to store customers’ cryptocurrencies, in particular. The new Swiss DLT Law has clarified under which circumstances the storage of cryptocurrencies requires a license under the Federal Act on Banks and Savings Institutions, such as a (simplified) fintech license if the relevant cryptoassets assets are neither invested nor interest-bearing. Moreover, for crypto-based assets that banks hold as deposit assets for custodian clients, FINMA may set a maximum amount on a case-by-case basis if this appears necessary due to the risks associated with such business. Stablecoins in particular must, in the absence of more specific guidance from FINMA, be analyzed on a case-by-case basis to determine whether any such license (in particular, a banking or a securities firm license, a payment system license or a license in connection with collective investment schemes) is required. Design features of stablecoins that may be decisive for whether a particular license is required include:

• whether a single underlying or a basket of underlying is used;
• the type of underlying; and
• if the stablecoin in question gives the holder a contractual redemption claim with regard to the underlying, respectively, the value of the underlying, or if the token merely fulfills the function of evidencing an ownership position with regard to the underlying.

As a third factor, the Federal Anti-Money Laundering Act (AMLA) and its implementing regulations provide for a series of obligations that financial intermediaries must adhere to; for example, regarding the verification of the identity of customers or contracting parties as well as the beneficial owners of funds held.

With regard to cryptocurrencies, the following is important concerning anti-money laundering regulations:

• primary market initial coin offerings: according to FINMA, issuing cryptocurrencies (e.g, payment tokens or stablecoins) constitutes financial intermediation (issuance of a means of payment); and
• secondary market sales and trading: merely selling cryptocurrencies to another party, or using such cryptocurrencies as means of payment for the sale or purchase of goods and services, does not constitute financial intermediation.

The revised Swiss Anti-Money Laundering Ordinance clarifies that the assistance provided in connection with the transfer of virtual currencies are services related to payment transactions that cause the service provider to be deemed a financial intermediary subject to the AMLA if such services are provided in the context of a permanent business relationship.

Token issuance

22. Are there rules or regulations governing the issuance of tokens, including security token offerings (STOs), initial coin offerings (ICOs) and other token generation events?

As there are few specific rules or regulations governing the issuance of tokens, the regulatory consequences depend on the nature of the asset and the activity.

In particular, an offer and sale of utility tokens, asset tokens and stablecoins may become subject to offer or sales regulations if the tokens in question constitute securities within the meaning of Swiss law. Sales activities relating to tokens that qualify as securities may, in particular, trigger:

• Swiss securities firm license requirements under the FinIA;
• Swiss trading platform regulations under the FMIA; or
• Swiss prospectus requirements and further regulations in connection with financial services under the FinSA.

Under FINMA’s ‘Guidelines for enquiries regarding the regulatory framework for initial coin offerings’ of February 2018 and supplemented on 11 September 2019, the following three categories of tokens can be distinguished (even though tokens may also fall into more than one of these three basic categories):

• Payment tokens (pure cryptocurrencies): tokens that are intended to be used, now or in the future, as a means of payment for acquiring goods or services or as a means of money or value transfer. They do not give rise to any claims towards an issuer or a third party and to date are not treated as securities by the Swiss Financial Market Supervisory Authority (FINMA). The question of whether pure cryptocurrencies should nevertheless be treated as ‘financial instruments’ and as such subject to the regulation of financial services as set out in the FinSA remains unresolved (but given the wording of the FinSA, we believe that the question should be answered in the negative).
• Utility tokens: tokens that are intended to provide access digitally to an application or service by means of a DLT-based infrastructure. Subject to certain restrictions, utility tokens that neither fully nor partially serve investment purposes are currently not treated as securities by FINMA.
• Asset tokens: represent assets such as a debt or an equity claim against the issuer (such as a share in future company earnings or future capital flows). Being in terms of their economic function analogous to equities, bonds or derivatives, such tokens are generally treated as securities. Stablecoins and tokens that enable physical assets to be traded on a blockchain infrastructure may also fall into this category.

In addition, the AMLA and implementing regulations provide for a series of obligations that financial intermediaries must adhere to; for example, regarding the verification of the identity of customers or contracting parties as well as the beneficial owners of funds held. In the context of the primary market or ICO, according to FINMA, issuing cryptocurrencies (e.g, payment tokens or stablecoins) constitutes financial intermediation (issuance of a means of payment).

ARTIFICIAL INTELLIGENCE

Artificial intelligence

23. Are there rules or regulations governing the use of artificial intelligence, including in relation to robo-advice?

Switzerland currently does not have special rules regarding the application of artificial intelligence, in spite of a number of reports having been commissioned by the Federal Council (the Swiss federal government). Notable among these reports is the 2019 report Challenges of Artificial Intelligence, authored by the Interdepartmental Working Group on artificial intelligence. A 2022 report on artificial intelligence and international rules, authored by the Federal Department of Foreign Affairs, characterizes the 2019 report as ‘a reference point for AI rules and standards’, but notes that it took ‘a somewhat different approach from the one emerging internationally, where the emphasis is on regulating AI as a technology and defining key horizontal legal requirements with broad substantive and personal scope’, whereas ‘the [2019] report adopts a more technology-neutral approach, and only suggests amendments to the law where these are needed for specific sectors and applications’.

Swiss law does not provide for specific regulation applicable to robo-advisers, therefore robo-advisers and the fintech companies operating such applications are subject to the general financial market laws in Switzerland. Whether or not a robo-adviser is subject to a licensing requirement in Switzerland depends on the specific activities performed and services offered by the robo-adviser. Typically, robo-advisers provide their services in cooperation with a licensed bank. Under such a set-up, the client will be onboarded by a third-party deposit bank holding the relevant client assets. The robo-adviser is then granted power of attorney over such assets to submit instructions to the relevant deposit bank to execute the transactions based on the automated investment decision rendered by the robo-adviser. In such a set-up, the robo-adviser will be rendering discretionary asset management services within the meaning of the Federal Act on Financial Institutions (FinIA). A robo-adviser, respectively the fintech company operating the robo-adviser, will therefore qualify as a regulated asset manager requiring a license under the FinIA. In contrast, to the extent that the robo-adviser only provides investment advisory services (namely, by submitting investment proposals to the client based on its algorithms), the robo-adviser will not be subject to a licensing requirement in Switzerland. Both discretionary asset management and investment advice – depending on the specific set-up – qualify as a financial service within the meaning of the Federal Act on Financial Services (FinSA). As a consequence, the robo-adviser and the fintech company operating such robo-adviser will have to adhere to the ongoing conduct, client segmentation, documentation and organizational duties set out under the FinSA.

CHANGE OF CONTROL

Notification and consent

24. Describe any rules relating to notification or consent requirements if a regulated business changes control.

The regulatory requirements on Swiss-licensed financial institutions generally include that the natural and legal persons who directly or indirectly hold at least 10 percent of capital or voting rights or exercise decisive influence on their business activities by other means ensure that their influence is not exercised to the detriment of prudent and sound management. The requirement for these financial institutions to meet the licensing requirements on an ongoing basis also means that almost all transactions involving significant changes in shareholders require Swiss Financial Market Supervisory Authority (FINMA) approval to be obtained. In addition, banks and securities firms organized under Swiss law but subject to a controlling foreign influence are subject to additional licensing requirements.

Shareholders in Swiss-licensed financial institutions may also be required to notify FINMA if their holdings cross or meet certain thresholds.

FINANCIAL CRIME

Anti-bribery and anti-money laundering procedures

25. Are fintech companies required by law or regulation to have procedures to combat bribery or money laundering?

Under Swiss law, both issuing cryptocurrencies as well as the subsequent trading of such tokens may be subject to anti-money laundering regulations.

The relevant starting point is to ask whether a person or company engages in any activities that constitute financial intermediation and is hence considered a financial intermediary under the Federal Anti-Money Laundering Act (AMLA). Other than licensed financial institutions, financial intermediaries include any persons or companies that, on a professional basis:

• accept or hold deposit assets belonging to third parties;
• assist in the investment of such assets; or
• assist in the transfer of such assets.

Prior to engaging in financial intermediation, such persons or companies that are not licensed financial institutions must join a Swiss self-regulatory organization.

The AMLA and implementing regulations provide for a series of obligations that financial intermediaries must adhere to (e.g, regarding the verification of the identity of customers or contracting parties as well as the beneficial owners of funds held).

With regard to cryptocurrencies, the following is important concerning anti-money laundering regulations:

• Primary market initial coin offerings: according to the Swiss Financial Market Supervisory Authority (FINMA), issuing cryptocurrencies (e.g, payment tokens or stablecoins) constitutes financial intermediation (issuance of a means of payment).
• Secondary market sales and trading: merely selling cryptocurrencies to another party, or using such cryptocurrencies as means of payment for the sale or purchase of goods and services, does not constitute financial intermediation. The revised Swiss Anti-Money Laundering Ordinance clarifies that the assistance provided in connection with the transfer of virtual currencies are services related to payment transactions that cause the service provider to be deemed a financial intermediary subject to the AMLA if such services are provided in the context of a permanent business relationship.

Guidance

26. Is there regulatory or industry anti-financial crime guidance for fintech companies?

There is no specific regulatory or industry anti-financial crime guidance for all fintech companies. However, some general principles and specific requirements can be deduced from interpretative guidance provided by the Federal Council (the Swiss federal government) and FINMA as regards the interpretation and application of certain aspects of Swiss laws and regulations. For banks, the Swiss Bankers Association has issued guidelines on opening corporate accounts for distributed ledger technology companies that are binding on its members. The Capital Markets and Technology Association, an independent association, has also produced a set of ‘AML Standards for Digital Assets’.

DATA PROTECTION AND CYBERSECURITY

Data protection

27. What rules and regulations govern the processing and transfer (domestic and cross-border) of data relating to fintech products and services?

In Switzerland, the Federal Act on Data Protection (DPA) and its corresponding ordinances regulate the processing of personal data by private parties. Thus, in relation to fintech products and services, the DPA includes the relevant rules and regulations governing the processing and transfer of personal data relating to such products and services. There are no sector-specific data protection rules specifically focusing on fintech products and services. However, where such products or services are offered by certain regulated businesses (eg, by banks, securities firms, financial markets infrastructure providers), in addition to general data protection law, specific confidentiality obligations may apply.

Cybersecurity

28. What cybersecurity regulations or standards apply to fintech businesses?

In principle, the standard set by the DPA applies, which requires that those who process personal data implement and maintain adequate technical and organizational measures to ensure data security (namely, to prevent unauthorized processing of such personal data).

In addition, for certain regulated businesses, additional requirements under applicable financial markets regulation apply: for instance, banks are currently subject to Swiss Financial Market Supervisory Authority (FINMA) Circular 2008/21 on Operational Risks, which stipulates certain requirements applicable to electronic client data; effective as of 1 January 2024, this Circular 2008/21 will be replaced by the new FINMA Circular 2023/1 on Operational Risks and Resilience addressing also cyber risk and critical data risk management. In addition, FINMA has issued Guidance 05/2020 detailing FINMA’s expectations in relation to the reporting of cyberattacks by supervised financial institutions.

OUTSOURCING AND CLOUD COMPUTING

Outsourcing

29. Are there legal requirements or regulatory guidance with respect to the outsourcing by a financial services company of a material aspect of its business?

Outsourcing by banks, insurers and certain other regulated businesses is regulated by the Swiss Financial Market Supervisory Authority (FINMA) Circular 2018/3 on Outsourcing. This Circular defines the supervisory requirements that apply when a bank, insurance company or another regulated business within the scope of the Circular outsources a function that is significant to the company’s business independently and on an ongoing basis. In addition to these specific requirements as per the Circular, general data protection law as well as the confidentiality obligation need to be taken into account. Where the outsourcing provider acts as a data processor for the financial services company, a data processing agreement is to be put in place.

Cloud computing

30. Are there legal requirements or regulatory guidance with respect to the use of cloud computing in the financial services industry?

There is no specific law or regulation governing the use of cloud computing in the financial services industry. The applicable legal requirements follow from confidentiality obligations applicable in the financial services industry, namely:

• FINMA Circular 2018/3 on Outsourcing;
• FINMA Circular 2008/21 on Operational Risks;
• FINMA Circular 2023/1 on Operational Risks and Resilience, effective from 1 January 2024; and
• general data protection law.

INTELLECTUAL PROPERTY RIGHTS

IP protection for software

31. Which intellectual property rights are available to protect software, and how do you obtain those rights?

Software is automatically protected under copyright law in Switzerland if and to the extent it constitutes a copyrightable work (namely, if it is an intellectual creation with individual character). Thus, there is no need for the author of the software to register the software or apply for protection to obtain copyright. In addition, patent protection is in principle also available for computer-implemented inventions where the necessary requirements are met. In any case, the abstract algorithm and basic idea underlying a computer software cannot be monopolized by copyright or patent protection.

IP developed by employees and contractors

32. Who owns new intellectual property developed by an employee during the course of employment? Do the same rules apply to new intellectual property developed by contractors or consultants?

Ownership belongs to the employer by way of statutory law where an employee, in performing work for the employer and complying with their duties under the employment contract, creates an invention or a design or computer software. Beyond that, the employer and the employee may agree for additional intellectual property rights to transfer to the employer by way of contract. In practice, it is advisable for an employment contract to specifically address the transfer of intellectual property created by the employee in the context of the employment relationship with the employer. There are no express corresponding rules applicable to third-party contractors and consultants, such that the ownership of the intellectual property created by such third parties would have to be determined in view of the specific circumstances. Thus, in practice, it is advisable to put in place a clear contractual arrangement.

Joint ownership

33. Are there any restrictions on a joint owner of intellectual property’s right to use, license, charge or assign its right in intellectual property?

Joint ownership is frequently discussed in contract negotiations, but most often not an ideal solution given that Switzerland, like many other jurisdictions, lacks explicit rules governing joint ownership of intellectual property. Thus, whenever that is contemplated, it is advisable to agree on joint ownership only based on a clear contractual basis governing each joint owner’s right to use, license, charge or assign the relevant intellectual property or the ownership interest of such joint owner.

Trade secrets

34. How are trade secrets protected? Are trade secrets kept confidential during court proceedings?

Trade secrets are protected under various statutory laws, including employment law, unfair competition law and criminal law. The relevant provisions limit the unlawful disclosure and exploitation of trade secrets. In addition, contractual confidentiality agreements serve to protect the confidentiality of trade secrets. In court proceedings, the court may upon request of a party impose measures to protect the confidentiality of trade secrets disclosed during the proceedings.

Branding

35. What intellectual property rights are available to protect branding and how do you obtain those rights? How can fintech businesses ensure they do not infringe existing brands?

Trademark protection is available to protect branding. To obtain trademark protection, the relevant designation – for example, a word or logo, or a combination – must be filed as a trademark application to the Swiss Federal Institute of Intellectual Property. In addition to trademark protection, brands may also be protected under unfair competition law, which prohibits certain deceptive practices in commerce. It is advisable to conduct a proper search prior to adopting a brand to minimize the risk of infringing pre-existing trademark rights.

Remedies for infringement of IP

36. What remedies are available to individuals or companies whose intellectual property rights have been infringed?

In general, civil law remedies and criminal law remedies may be available to individuals or companies whose intellectual property rights have been infringed. Civil law remedies include actions to cease and desist from the infringing activities, compensation of damage and surrender of profits. In addition, infringements of intellectual property rights generally also constitute criminal offenses, such that an individual or company whose intellectual property rights have been infringed may also file criminal complaints.

COMPETITION 

Sector-specific issues

37. Are there any specific competition issues that exist with respect to fintech companies in your jurisdiction?

The general competition law rules in Switzerland also apply to fintech companies and the fintech sector. Hence, fintech companies are subject to the general rules on prohibition of anti-competitive agreements, abuse of dominance and merger control. There are no sector-specific competition law rules targeting the fintech sector.

There has been certain enforcement action in the fintech sector in past years. With regard to anti-competitive agreements, the Swiss Competition Commission (ComCo) concluded an amicable settlement with Apple in 2018, according to which, Apple Pay shall not automatically start if a customer attempts to pay with the (competing) Swiss payment app TWINT. Following a complaint from Apple, ComCo is currently investigating an alleged boycott of Apple Pay by the Swiss banks (in favour of TWINT). With regard to abuse of dominance, ComCo has fined payment systems operator SIX approximately 7 million Swiss francs, in particular for refusal to supply interoperability information to competing payment terminal suppliers; the decision has been confirmed by the Federal Supreme Court in 2022. In the area of merger control, ComCo has approved the acquisition of joint control by SIX and PostFinance over payment app TWINT subject to commitments that TWINT will not discriminate or grant exclusivities to other companies.

TAX

Incentives

38. Are there any tax incentives available for fintech companies and investors to encourage innovation and investment in the fintech sector in your jurisdiction?

There are no tax incentives created specifically for fintech companies in Switzerland. However, companies benefit from an attractive tax environment with low corporate tax rates (depending on the location within Switzerland), tax-free capital gains on the sale of equity investments by private individuals and lowered tax rates for the sale of substantial equity investments by legal entities. Private individuals also benefit from the tax exemption of capital gains on the sale of cryptocurrencies, creating an attractive market for a variety of different business models. The value added tax rate of 7.7 percent is another locational advantage as it is quite low compared to most EU countries. Some fintech business models may even profit from a value added tax exemption if the offered services are similar to classic banking services (e.g, brokering or granting of loans, brokerage or acceptance of deposits).

Increased tax burden

39. Are there any new or proposed tax laws or guidance that could significantly increase tax or administrative costs for fintech companies in your jurisdiction?

There are no tax changes planned that could hinder the development of fintechs. Rather, Switzerland will soon vote on the abolition of withholding taxes on bond interest payments.

This has the potential to make bond financing in Switzerland more attractive for companies, but it also increases the attractiveness of different types of financing with bond-like characteristics (eg, issuing asset-backed tokens that qualify as debt financing).

IMMIGRATION

Sector-specific schemes

40. What immigration schemes are available for fintech businesses to recruit skilled staff from abroad? Are there any special regimes specific to the technology or financial sectors?

There are no special immigration schemes available for fintech businesses or regimes specific to the technology or financial sector. However, citizens of EU member states are entitled to receive a work permit in Switzerland under the bilateral agreements between Switzerland and the European Union. Further, Switzerland and the United Kingdom are discussing a treaty to ensure that UK and Swiss nationals will continue to benefit from the privileges granted to EU member state citizens after Brexit. Nationals of a country outside the European Economic Area will require a work permit, which may be subject to quotas. As a rule, work permits for highly qualified persons, such as senior managers or technical experts, will always be available.

UPDATE AND TRENDS IN FINTECH IN SWITZERLAND

Current developments

41. Are there any other current developments or emerging trends to note?

With the Law on Distributed Ledger Technology having entered into effect and additional amendments having been made to the Federal Act on Banks and Savings Institutions and Federal Anti-Money Laundering Act, clarifying the regulatory treatment of digital assets in Switzerland, the Swiss government has established a robust legal framework under which fintech companies are able to implement their respective business models. Under the Swiss legal framework, fintech companies can benefit from increased legal certainty, facilitating the provision of fintech-driven financial services.

While traditional financial service providers have more recently expanded their offerings to digital assets, a number of fintech companies have successfully entered the market for financial services in Switzerland. These developments and trends are expected to continue, with more and more decentralized finance applications expanding their offerings in Switzerland.

* The information in this chapter was accurate as of July 2023.

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“The article’s content refers to the regulations that were applicable at the time of its creation and is intended solely for reference purposes. To obtain accurate information, it is advisable to seek the guidance of a consulting lawyer.”

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