As governments crack down on crypto following 2022’s blowups, a relatively small Bitcoin ATM operator in Switzerland is pushing back against that nation’s main markets regulator, arguing its rules are too onerous.

Bity, the nine-year-old firm that runs 45 ATMs in Switzerland, has begun a David-versus-Goliath legal challenge against the Financial Market Supervisory Authority (FINMA), and is crowdfunding donations to help pay its legal bills, telling potential contributors: “FINMA is fighting crypto! We are fighting back!”

It’s raised almost 20,000 Swiss francs (about $23,000) so far toward its 25,000-franc goal.

What angered Bity is FINMA tightening know-your-customer (KYC) rules. Anyone using a Bitcoin ATM in Switzerland must now do a KYC check – in other words, reveal their identity – if they transact more than 1,000 francs (about $1,150) over a 30-day period. This is being implemented in an undemocratic way, Bity Chairman Alexis Roussel said in an interview.

Bity’s complaint points to what it sees as a regulatory gray area, since FINMA-licensed entities do not include money transfer-type businesses, and it should be up to self-regulatory organizations (SROs) such as financial standards association VQF to define how members best implement anti-money laundering laws.

However, the soft power of FINMA has seen these SROs automatically including new rules and becoming an echo chamber, without a clear ability to legally challenge these rules, according to Roussel.

“Normally, this Ordinance only applies to firms that have a license with FINMA,” Roussel said. “It doesn’t apply to companies like Bity or like Western Union or any wealth manager. But there’s a soft power system at play here which is very blurry, and whenever [FINMA] put something in their own Ordinance, all the other self-regulatory organizations have to follow this rule.”

However, these money transfer firms are subject to “monitoring due diligence obligations under the AMLA [Anti-Money-Laundering Act],” FINMA said, declining to comment specifically on Bity’s complaint.

“The background for lowering the threshold is not only the international standards (recommendation of the FATF, the standard setter in the field of anti-money laundering, which has set the threshold of USD/EUR 1000 for virtual currencies), but also the high money laundering risks associated with such services,” FINMA said in an emailed statement.

“Indeed, there is concrete evidence that cryptocurrency ATMs in Switzerland have been misused as a common means of payment by certain drug trafficking networks,” FINMA added, citing media reports on the Vitamintaube case.

Self-regulatory organization VQF did not respond to requests for comment.

According to Roussel, a lawyer by trade and also the chief operating officer of crypto privacy-focused startup Nym, FINMA changed the rules for Bitcoin ATMs without doing any analysis and ignoring all the respondents of a consultation, who were uniformly opposed to the proposed change.

Roussell also pointed out that the Financial Action Task Force (FATF), which informs regulators about things like lowering transaction thresholds for identifying people in the financial system, is “a non-democratic system that has no jurisdiction in Switzerland.”

In addition, FINMA’s “concrete evidence” that cryptocurrency ATMs in Switzerland are used by drug trafficking networks is based on sensationalist media reporting, Roussel said, centered on a handful of non-compliant crypto ATMS clustered around a railway station in Switzerland, none of which are still in operation.

“The crypto industry is stronger now and won’t be pushed around as easily as it has been in the past,” Roussel said, “FINMA was able to do this because they were never put in check.”

CORRECTION (July 31, 2023, 17:02 UTC): Gives Alexis Roussel's correct title, which is chairman of Bity.