Switzerland: FINMA Re-Affirms Stringent Approach to Anti Money Laundering and Blockchain Technology

The Swiss Financial Market Supervisory Authority (FINMA) has published guidance as to the application of regulatory requirements for payments on the blockchain for financial services providers under FINMA supervision. Specifically, the guidance addresses anti-money laundering (AML) and know your customer (KYC) rules.

In a release, FINMA said it recognizes the innovative potential of new technologies for the financial industry, IE Fintech, but the agency applies the relevant provisions of financial market law in a technology-neutral way.

While reaffirming its support of Fintech, FINMA stated that blockchain-based business models may not be allowed to circumvent the existing regulatory framework.

“This applies particularly to the rules for combating money laundering and terrorist financing, where the inherent anonymity of blockchain technology presents increased risks,” stated FINMA.

FINMA commented onn the recently approved AML/KYC approach by the Financial Action Task Force (FATF) which addressed financial services using blockchain. FINMA stated:

“As for traditional bank transfers, information about the client and the beneficiary must be transmitted with transfers of tokens (with the exception of transfers from and to unregulated wallet providers). Only then, for example, can the provider receiving this information check the name of the sender against sanction lists or check that the information provided about the beneficiary is correct.”

FINMA said it has consistently applied the AML Act to blockchain service providers since their emergence. Existing law requires that information about the client and the beneficiary be transmitted with payment orders. FINMA admits that no system currently exists at either a national or an international level for reliably transferring identification data for payment transactions on the blockchain.

Institutions supervised by FINMA are only permitted to send cryptocurrencies or other tokens to external wallets belonging to their own customers whose identity has already been verified and are only allowed to receive cryptocurrencies or tokens from such customers.

FINMA-supervised institutions are thus not permitted to receive tokens from customers of other institutions or to send tokens to such customers.

FINMA stated its regime is one of the most strict in the world:

“This practice applies as long as information about the sender and recipient cannot be transmitted reliably in the respective payment system. Unlike the FATF standard, this established practice applies in Switzerland without the exception for unregulated wallets and is, therefore, one of the most stringent in the world.”

The guidance from FINMA arrives following a US Congressional trip to Switzerland orchestrated to better understand the emerging crypto ecosystem. Organized by House Financial Services Committeee Chairwoman Maxine Waters, the Representative appeared to remain skeptical regarding the regulatory environment of Switzerland.

FINMA also noted the approval of two banking and securities dealer licenses to two digital asset firms which will offer blockchain-based services to institutions and professional customers. FINMA provided provided provisional approval to Sygnum AG and SEBA Crypto AG.

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