UPDATE (Thursday June 26th 13:45 BST) The Swiss Financial Market Supervisory Authority (FINMA) has released an updated bitcoin factsheet, taking into account the findings of the Federal Council report. The FINMA factsheet outlines regulatory limitations and licensing requirements for bitcoin operators. Depending on the business model, bitcoin businesses may require a banking licence and some activities fall under money laundering regulations.
Switzerland’s Federal Council has published a report stating that, for the time being, it will not create legislation relating specifically to bitcoin or other digital currencies.
The government report claims the economic importance of these currencies is currently “fairly insignificant” and the council doesn’t expect this to change in the near future.
This report has been created following the submission of postulates by National Councillors Jean-Christophe Schwaab and Thomas Weibel last year, which asked the Federal Council to examine the risks and opportunities associated with bitcoin.
No ‘legal vacuum’
A point the government is keen to stress in the report is that virtual currencies are not in a “legal vacuum”, meaning that existing laws apply to activities associated with these currencies. It states:
“Contracts with virtual currencies are enforceable in principle and penalties can be imposed for criminal offences associated with virtual currencies. Certain business models based on virtual currencies are subject to financial market laws and need to be subjected to financial market supervision.
Professional trade in virtual currencies and the operation of trading platforms in Switzerland generally come under the scope of the Anti-Money Laundering Act. This includes compliance with the obligation to verify the identity of the contracting party and establish the identity of the beneficial owner.”
Some of the laws that apply to certain uses of digital currency include the Swiss Code of Obligations, the Federal Act on Combating Money Laundering and the Financing of Terrorism in the Financial Sector, plus the Federal Act on Banks and Savings Banks.
Schwaab told CoinDesk he was pleased the report had clarified the legal status of bitcoin: “The report ensures legal certainty. That’s the most important topic at this point. Now, people who trade bitcoin can know which financial sector regulation applies or not.”
He went on to say he thinks the report underestimates the economic potential of bitcoin. He said:
“That’s a big mistake for a country like Switzerland with a strong financial sector. I hope the banking sector will be cleverer than the Government on that point, but I’m pessimistic.”
Schwaab even went as far as to suggest he is personally becoming increasingly bullish about digital currency.
“In the last months, my personal views about bitcoin have evolved: the more I learn about bitcoin, the less I remain sceptical about it!”
Alexis Roussel, CEO of Swiss based cryptocurrency broker SBEX, said the report represented good news for the Swiss bitcoin ecosystem.
He was particularly interested in the parts of the report that are relevant to his company’s plans to deploy a bitcoin ATM network within Switzerland.
“Managing an ATM would be considered directly as money transmitting service, with tighter rules. This is starting to shape how bitcoins ATM will work,” Roussel said.
He explained it means ATM operators would always need to be licensed, unless they can ensure the user is in control of the private key of the bitcoin wallet they are sending to.
“This is imposing high standards in the bitcoin financial world, but this will be beneficial for consumers in the end,” he added.
The report gives examples of the risks associated with bitcoin, stating that, while there is no risk of it damaging the country’s existing financial sector, consumers are vulnerable to volatility and security issues.
It concludes by advising consumer protection organisations within the country to urge people to use caution when using bitcoin.
Federal Palace of Switzerland image via Shutterstock