The recent news that the Swiss stock exchange has received regulatory approval to operate a stock exchange and depository for blockchain-based securities has a myriad of implications for the place of digital assets within the wider Swiss financial landscape.
The news raises questions around everything from how this will affect institutional interest in digital assets, how other digital exchanges will view the news, and just how significant a milestone it is in the context of the growing acceptance of cryptocurrencies.
In this guest-authored post for The Fintech Times, Adrien Treccani discusses the implications of this news, and provides an insight into both the Swiss financial ecosystem, and the wider world of finance and digital assets.
Adrien is the CEO and Founder of METACO; a provider of security-critical infrastructure that enables financial institutions to enter the crypto-asset sector.
Switzerland has long been regarded as one of the world’s leading financial centres. Less known, but equally important for the future of finance is that since 2013, The Swiss Confederation has additionally emerged as an international hotspot for the development of distributed ledger technologies (DLT) and the expansion of digital asset capabilities.
Multiple factors help establish Switzerland as an attractive place to set up digital assets operations: the key one being its regulatory framework, which crucially provides flexibility and security.
As early as 2015, the Swiss Financial Market Supervisory Authority (FINMA) issued the first banking license, heralding the founding of the Swiss “Crypto Valley”, and in 2016 the Zug City Council decided to accept Bitcoin as a means of payment for services up to 200 Swiss francs.
Last September, Swiss parliamentarians voted to pass a wide-ranging set of financial and corporate law reforms around DLT technology, further opening the doors to the adoption of digital assets in the country. The recent approval by FINMA of a license for the Swiss SIX Digital Exchange to trade digital assets using DL therefore further cements Switzerland’s position as a leading location for the banking of digital assets.
The approval of the SIX Digital Exchange marks a licensing milestone: SDX can now trade securities, such as company shares and bonds, on a digital platform that is similar to blockchain. SDX is backing the new technology to reduce trading delays and save on costs. It provides institutional investors with a safe and robust infrastructure in which to operate.
This approval comes at a time when banks and asset managers are increasingly demanding access to such technologies. Earlier this year the second largest bank in Spain with over 750 billion in assets globally, BBVA joined the ranks of a growing number of financial institutions who have launched Bitcoin trading services for its clients and indicates the race taking place among financial institutions to launch digital asset services.
Indeed many of the world’s largest financial institutions, including Standard Chartered, DBS Bank, and BNY Mellon, have been quietly building capabilities in anticipation of clear and comprehensive regulation on digital assets. With the technology evidently now in place for institutional investors to take advantage of the opportunity offered by digital assets – as demonstrated by the launch of SIX – it’s clear we’re at an inflection point for the adoption of such assets, with any remaining barriers to their adoption eroded.
This development comes at a time when cryptocurrencies have received enhanced attention around the world: earlier this month El Salvador became the first country to accept Bitcoin as legal tender, whilst Ukraine has also adopted a law that will legalise and regulate cryptos. More specifically, the approval is reflective of the positive regulatory progress around DLT and digital assets.
For example, towards the end of last year, the European Commission proposed a pilot regime for market infrastructures seeking to trade and settle transactions in financial instruments in crypto-asset form. This regime allows for exemptions from existing rules and allows regulators and companies to test innovative solutions utilising blockchain, whilst in North America, the Office of the Comptroller of the Currency (OCC) has provided guidance enabling banks to provide crypto custody services.
In addition to being a huge development for the Swiss blockchain sector, the SIX Digital Exchange launch therefore also holds global significance. Indeed SIX has also partnered with Japanese digital financial firm SBI Digital Asset Holdings, a unit of the SBI Group, to expand into Asia: it has applied to the Monetary Authority of Singapore, the country’s financial regulator, for a license to go live in 2022. Switzerland is evidently ahead of the curb in continuing to legislate for the expansion of fintech and blockchain.
The digital assets industry has matured significantly in recent years in Switzerland and further afield. There are now mature, technological solutions in place for institutional players to get involved in the sector. The availability of trusted counterparties and institutional-grade infrastructure has removed the barriers to adoption for many such players. Regulation is the final piece of the puzzle in many jurisdictions which regulators have realised the urgent need to address. As the industry goes from strength to strength, Switzerland continues to gain global recognition as a hub for innovation within the space.