In this post, I’ll look at setting up a Swiss Crypto Exchange or fintech business using a fintech license or as a Qualified Intermediary. It is also possible to operate as a full bank in this capacity, but this is beyond the scope of this article.
Introduction
Operating a cryptocurrency exchange in Switzerland involves dealing with financial transactions and requires a thorough understanding of the Swiss regulatory environment.
Here are some considerations about licensing:
Banking License:
If your exchange operates in a way that it accepts public deposits (which may occur if you hold customers’ fiat currencies or cryptocurrencies), you might need a banking license from the Swiss Financial Market Supervisory Authority (FINMA). However, obtaining a full banking license can be a lengthy and expensive process.
FinTech License:
To cater to the needs of the growing fintech industry, including cryptocurrency businesses, FINMA introduced a new regulatory category in 2019 called the “FinTech” license, or “banking license light”. This license allows institutions to accept public deposits of up to CHF 100 million, provided they do not invest these deposits and do not pay any interest on them.
Securities Dealer License:
If your exchange is dealing with security tokens, it might need a securities dealer license.
AML Regulations: Independent of the license type, any cryptocurrency exchange operating in Switzerland is required to comply with the Anti-Money Laundering (AML) Act. They must either join a self-regulatory organization (SRO) for AML purposes or be directly supervised by FINMA.
However, the specific licenses required can vary depending on the exact nature of your business, including the types of assets you’re dealing with (cryptocurrencies, security tokens, etc.), the services you offer, and the way your business operates. Furthermore, Switzerland has a highly decentralized political system, and there may be additional cantonal requirements to consider.
Setting up a Crypto Exchange in Switzerland
Here are the general steps you’d need to follow to open a cryptocurrency exchange in Switzerland. These steps may change over time as legislation evolves, so always consult with a local legal expert for the most up-to-date information.
Set Up a Swiss Company: In general, a crypto exchange must be registered as a Swiss company, which typically takes the form of a public limited company (AG) or a limited liability company (GmbH). The company must have a registered office in Switzerland. See Aged Swiss Trust below.
Membership in a Self-Regulatory Organization (SRO): Switzerland operates a dual system of financial market regulation, composed of federal regulation by the Swiss Financial Market Supervisory Authority (FINMA) and self-regulation by SROs. Depending on the type of financial service offered, crypto businesses must either become members of an SRO or be directly supervised by FINMA.
Apply for Necessary Licenses: If the exchange intends to accept public deposits, it will usually need a banking license. Additionally, if the exchange also operates as a securities dealer, it will need a securities dealer’s license. These licenses are granted by FINMA. Crypto exchange businesses might also be subject to the Swiss Anti-Money Laundering (AML) Act, which would require a FINMA license under the AML Act.
Switzerland has introduced a new licensing category called the “FinTech” license, or “banking license light”. This new regulatory category allows institutions to accept public deposits of up to CHF 100 million, provided they do not invest these deposits and do not pay any interest on them. These new FinTech licenses are less expensive and less complicated to obtain than a full banking license.
The requirements for the FinTech license are:
Having the necessary organization, qualified staff, and appropriate infrastructure.
Complying with the Anti-Money Laundering Act.
Keeping customer deposits fully segregated from the business’s operating capital.
Ensuring a minimum capital of 3% of the accepted public funds, but no less than CHF 300,000.
Compliance with Local Laws: Compliance with local laws and regulations is essential, especially regarding money laundering and securities regulations. Companies may also need to comply with other rules related to taxation, data protection, and consumer protection.
Secure Necessary Funding: Operating a crypto exchange can be capital-intensive. Aside from regulatory capital requirements, businesses will need enough funding to build their platform, employ staff, and cover operational costs.
Build Relationships with Banks: Crypto exchanges typically need relationships with banks to handle customer deposits and withdrawals. In Switzerland, finding a bank that will work with a crypto business can sometimes be a challenge.
Build and Test Your Platform: Before launching, you’ll need to build and thoroughly test your exchange platform. This typically involves software development and cybersecurity considerations.
Launch and Market Your Exchange: Once all legal and technical requirements have been met, you can launch your exchange. Ongoing marketing will likely be necessary to attract users to your platform.
Qualified Financial Intermediaries
As per the Anti-Money Laundering Act (AMLA) of Switzerland, a Qualified Financial Intermediary (QFI) is a financial intermediary that either is directly supervised by the Swiss Financial Market Supervisory Authority (FINMA), or is a member of a self-regulatory organization (SRO) recognized by FINMA for the purpose of money laundering supervision.
The term “financial intermediaries” is broadly defined and can include not only banks, insurance institutions, and securities dealers, but also entities such as asset managers, collective investment schemes, and even certain types of fintech companies. These intermediaries need to comply with the Swiss AMLA.
As per Paragraph 2, Section 3 of the AMLA, a financial intermediary is obliged to join a self-regulatory organization (SRO) or to submit to direct supervision by FINMA.
In practical terms, financial intermediaries supervised under AMLA have to comply with duties such as:
Due diligence obligations: They are obliged to verify the identity of their contracting party and, where necessary, establish the identity of the beneficial owner.
Record-keeping: They have to keep records that fully reflect all transactions in such a way that third parties can understand them within a reasonable period of time.
Clarification obligations: In the case of business relationships or transactions which appear unusual or in the case of suspicions of money laundering, a financial intermediary must clarify the economic background and the purpose of these transactions or relationships and document the results.
The licenses are used to enable financial intermediaries to conduct their business within the legal framework of Switzerland. Once a company is classified as a QFI, it is authorized to perform activities like accepting and holding deposits, lending, securities dealing, asset management, and more, depending on the specifics of the license. However, the company is obliged to comply with AMLA and other relevant regulations.
Using an Aged Swiss Trust for a Crypto Exchange or Fintech Business
Establishing a cryptocurrency exchange or a fintech business under an aged Swiss trust or “shelf corporation” can have several advantages:
Established History: An aged corporation is a company that has been around for a while, which can make it appear more credible to customers, business partners, and banks. This is particularly beneficial in the fintech and crypto space, where trust is crucial.
Business Relationships: Existing corporations may already have established relationships with banks, suppliers, and other business partners. These relationships can be leveraged when launching new services, like a crypto exchange.
Speed of Setup: Aged corporations are already registered and have fulfilled all necessary legal requirements, so they can be faster to set up compared to starting a new company from scratch. This can help your business get to market more quickly.
Easier Access to Credit and Investment: Some banks and investors see older corporations as less risky, which can make it easier to obtain credit or attract investment.
Regulatory Approval: Regulatory bodies may view older corporations more favorably, which could potentially facilitate the process of obtaining necessary licenses.
Corporate Image: As you mentioned, the age of a company can help improve the business’s image with customers and with business partners, systems providers, and correspondent banking partners. It can provide a sense of stability and reliability.
However, it’s important to keep in mind that there are also potential drawbacks to using an aged corporation. For example, you may inherit liabilities from the previous operation of the company, or there may be additional due diligence required to ensure the company’s previous operations were in good standing. Additionally, an aged corporation may be more expensive to purchase than setting up a new corporation.
Moreover, regardless of the age of the company, compliance with local regulations, including obtaining the necessary licenses and ensuring adherence to anti-money laundering (AML) regulations, is still required.
Conclusion
In conclusion, setting up a cryptocurrency exchange in Switzerland can be a complex process that requires thorough preparation and a deep understanding of the regulatory landscape. However, with the right approach and guidance, it’s possible to navigate this process and establish a successful business.
It’s strongly recommended to seek advice from legal experts and professionals who are familiar with Swiss fintech regulations and the process of setting up a business in Switzerland. This way, you can ensure that your business is fully compliant with all relevant laws and regulations, and set up for success in the long term.
For more information on acquiring an aged Swiss Trust and building an exchange or fintech in Switzerland, please contact us.
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