Distributed ledger technology ("DLT") and blockchain technology as a subset of DLT are considered by many to offer a significant potential for innovation, enhancing efficiency and transparency in various areas of business, particularly in the financial sector. Switzerland has been at the forefront of the developments in this area, featuring a growing fintech and DLT ecosystem in which numerous established and new market participants work on reshaping financial services.
The principle-based and technology-neutral Swiss legal framework is generally innovation-friendly and well-suited to enable business models based on DLT. Nevertheless, in a report dated 14 December 20181, the Federal Council identified a need to enhance legal certainty, remove specific hurdles for DLT applications and limit the risks of the technology being abused for fraudulent or other undesirable purposes. It instructed the Federal Department of Finance (FDF) and the Federal Department of Justice and Police (FDJP) to draw up a legislative proposal.
Only three months later, on 22 March 2019, exhibiting a remarkable pace befitting the high-tech environment of DLT, the Federal Council presented a preliminary draft of a new Federal Act on the Amendment of Federal Laws in light of the Developments regarding DLT (Bundesgesetz zur Anpassung des Bundesrechts an Entwicklungen der Technik verteilter elektronischer Register / loi fédérale sur l'adaptation du droit fédéral aux développements de la technologie des registres électroniques distribués) along with an explanatory report.2 The preliminary draft is subject to public consultation until the end of June 2019, following which a draft will be prepared for deliberation in the Swiss Federal Parliament. The legislative proposal of the Federal Council underlines Switzerland's commitment to remain a leading hub for businesses in the areas of fintech and DLT. In particular, the new rules should enable useful applications of DLT while preserving the integrity and sound reputation of Switzerland as a financial centre and business location.
Based on the work of a federal expert group established by the State Secretariat for International Financial Matters at the beginning of 2018, the Federal Council published a report on 14 December 2018 on the legal framework for DLT and blockchain applications in Switzerland (the "DLT Report"). The tenor of the report was that the Swiss legal framework does not require a fundamental reorientation to address these emergent technologies, but that certain amendments of federal law should be considered to bolster legal certainty in key areas and prevent abuse. The report covered the full gamut from civil securities law to insolvency law and financial market regulation and was inter alia intended to serve as a basis for the FDF and the FDJP to prepare a legislative proposal. The focus areas of the report defining the brief for the FDF and FDJP included the following:
- increase legal certainty regarding the transfer of (tokenised) rights using DLT under Swiss civil law;
- introduce clear rules on the segregation of digital assets and data without asset value in bankruptcy (incl. with respect to bank insolvency procedures in particular);
- create a new licence category for DLT based trading facilities.
Furthermore, the report considered certain amendments to anti-money laundering regulation, in particular with regard to decentralised trading platforms.
The preliminary draft act presented for consultation on 22 March 2019 (the "Consultation Draft") picks up on all the topics listed above and proposes a series of amendments to various federal acts. It is important to note that, while all of these proposals are combined in one document for the purposes of the legislative process, it is not the plan to introduce a stand-alone "DLT law". Rather, in line with the Federal Council's intentions communicated in the DLT Report, the focus is on targeted amendments of existing legislation.
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