The Federal Council recognizes the potential of DLT and blockchain in its recently published report, providing an overview of the relevant legal framework and need for action.
Authors: Darko Stefanoski, Nicole Zürrer
As a key driver of innovation, ongoing structural change and in the long-run the competiveness of the Swiss economy, digitalization is predicted to have significant potential for innovation and efficiency gains in various sectors of the economy. One of the most promising developments in digitalization is the increasing use of Distributed ledger technology (DLT) and blockchain technology. A remarkable ecosystem with innovative fintech and blockchain companies, especially in the financial sector, has developed in Switzerland.
The Swiss Federal Council aims to create the best possible framework conditions for further and effective utilisation of the opportunities of digitalization. Switzerland as a leading location for fintech and blockchain companies shall ensure a sustainable environment for innovative companies and technologies especially in the financial sector. At the same time the integrity and good reputation of Switzerland as a financial centre and businsess location shall be preserved.
In this context the report of the federal Council analyses selected legal framework conditions in Switzerland with regard to how they enable the sustainable development of DLT and blockchain applications on one hand and how they limit the associated risks on the other.
The report focuses on the financial sector. This is because of the advanced developments in the areas of cryptocurrency and initial coin offerings (ICOs) and the thereby current legal and regulatory questions.
From the Federal Council’s point of view, the principle-based and technology neutral laws and regulations already provide an excellent basis to further design the legal framework and the positioning of Switzerland as a location for DLT and blockchain companies.
Principles of the Swiss regulatory approach to blockchain and DLT
The Federal Council states the following principles in his report:
- Politics should ensure an optimal framework conductive for innovation, while market and society will decide which technologies will prevail;
- The Swiss legal framework should be able to make swiftly targeted adjustments where there are gaps or obstacles with regard to DLT or blockchain applications;
- The rules should be shaped as competition-neutral as possible based on the technology-neutral legislative and regulatory approach, with room for exceptions;
- Legal certainty, clear rules and combating abuse: Switzerland should position itself as an attractive location for DLT/blockchain companies via legal certainty, efficient regulation and excellent reputation;
- Swiss authorities should position themselves open-minded towards these new technologies and innovations.
The Federal Council considers the above principles to be useful for the future design of the legal framework and the positioning of Switzerland as a location for blockchain companies.
To ensure the competitiveness of the Swiss economy in the long-term, Switzerland has to further improve the requirements for an effective use of the opportunities of digitalisation. Digitalisation is a key driver for innovation. Therefore, Switzerland has to ensure being a leading, innovative and sustainable location for the promising development in digitalisation such as DLT and blockchain technologies.
With his newly published report the Federal Council pursues the following three objectives:
- Establishing a selective overview of the relevant legal framework to serve fintech and blockchain companies, their clients, and the interested public as an information base for clarity regarding the current legal framework.
- Clarifying the need for legal action and where there is currently no need for adjustments.
- Realizing signalling effects with regard to the following statements:
- Switzerland’s openness towards technological innovation such as DLT and blockchain;
- Swiss legal framework suits as of today to deal with business models based on DLT and blockchain;
- Switzerland wants further improvement of its innovation-friendly framework;
- Abuses will be combated rigorously.
Changes in relevant legal areas
The Federal Council outlines in his report in which legal areas there is need for action and where there is currently no need for changes.
The Federal Council states that in the following legal areas adjustments might be useful:
- Civil law and insolvency law
- Banking law
- Financial market infrastructure law
- Financial service law
- Collective investment schemes law
- Insurance law
EY’s multidisciplinary approach
We are in an era of digital disruption and the regulatory legal environment is both a catalyst for such change and affected by changes elsewhere.
EY can provide you with an excellent guidance in connection with the foreseen adjustments in the above mentioned areas of law and is able to answer upcoming questions in the area of digitalization, DLT and blockchain, such as: Which are the use cases and applications of DLT and blockchain in the financial sector? How far reaches the potential of DLT and blockchain? What are the technological obstacles and operational risks? Which are the relevant legal provisions for your DLT or blockchain business?
EY’s lawyers are used to working effectively in international teams, and together with colleagues from other service lines in relation to digital regulatory matters. EY teams are working integrated, allowing clients to benefit in an efficient and effective manner.
More in-depth information in connection with the legal and regulatory changes around digitalisation will follow in separate deep dive blog posts.