Blockchain and legal certainty in Switzerland
This article is the third of a series of articles presenting the first countries in Europe to have developed a legal framework related to blockchain. The first article presented Bill 7363 which passed into law in Luxembourg on 14 February 2019 and the second covered the Law on Transaction Systems Based on Trustworthy Technologies (TT) (Blockchain Act) in Liechtenstein.
In March 2019, Switzerland too launched a public consultation to improve legal certainty in the financial sector when it comes to the use of blockchains. The aim is not to create a specific law on blockchain but to amend existing laws in order to provide legal certainty to the users of the financial sector, eliminate obstacles for distributed ledger technology-based applications and curb attempts of abuse. The consultation period will end in June 2019. After that a draft will be presented to the Swiss Federal Parliament.
A report from the Swiss federal finance department lists the proposed changes that should be made to existing legislation to include challenges put forth by the use of blockchain. The main proposed changes are the following:
· Articles 973d to 973h were proposed to be integrated into the Swiss Code of Obligations. The purpose of the article is to allow the electronic registration of rights which will thus have the same function as securities (rights-values of a distributed register). These articles would bring legal certainty to the transfer of distributed ledger technology-based assets. In this case, tokens that represent particular rights could be transferred in a formal manner. However, Digital representation and transfer will be possible only for those rights which could also be represented by a security and which are freely transferable.
· Another proposal is to make clear that distributed ledger technology-based assets have to be segregated from the debtor´s total assets in the case of bankruptcy. A new article would have to be included in the Federal Law on Debt Collection and Bankruptcy. Currently the law is not clear or whether the segregation is possible or not.
· Related to financial market infrastructure law, the Council proposed to create a new authorisation category for "distributed ledger technology trading facilities" in order to be able to provide more legal certainty in the sectors of trading, clearing, settlement and custody with distributed ledger technology-based assets. In addition, the Council proposed a revision of the future Financial Institutions Act to establish a licence for managing a trading facility as a securities firm. The proposed adjustments focus on the most urgent gaps that the Federal Council has identified in the right of financial market infrastructures, which concern the provision of infrastructure services in a centralized or partially decentralized with securities based on the distributed ledger technology. This work is independent of the medium-term general review of the Financial Market Infrastructure Act already announced by the Federal Council, which will provide an opportunity for a full evaluation. In addition, this project does not address the issue of fully decentralized "financial market infrastructures".
· Finally, according to the report, the Anti-Money Laundering Act does not need further amendments as it is already covering activities related to cryptocurrencies and initial coin offerings. Similarly, the Civil law does not need to be amended as it poses no obstacles for the transfer of cryptocurrencies.
Author: Dr Fanny Tittel-Mosser