“What’s seen as an overdue clarification in the US is already firmly established in Switzerland.” 

Q: Stephan, the statement focuses on risk management aspects that banks have to take into account when holding digital assets in safekeeping on behalf of customers and when storing them. What is the situation in Switzerland? Does it differ from the US approach?  

A: The US is now stressing that banks must only offer crypto-asset safekeeping that is “safe and sound” and must comply with all applicable laws. It’s important to note that the US hasn’t really issued any new rules, it has merely reiterated existing principles and signalled that it will continue to work on improving clarity. First and foremost, therefore, this statement underscores the need for caution and due diligence in banks’ digital asset services.

Q: Is Switzerland something of a pioneer in this respect?  

A: It certainly is. Switzerland set a course for regulating digital assets more than five years ago. In contrast to the US, which is only now providing clarity with new rules after years of uncertainty, Switzerland focused on applying its existing legislation in a technology-neutral manner. Instead of enacting a whole new law specifically for digital assets, it adapted existing laws (including those that govern financial markets) to include them and complemented these with various FINMA publications.

Q: Does Switzerland differ in any other aspects? 

A: Switzerland was quick to regulate the segregation of digital assets when a bank becomes insolvent. In the event of bankruptcy, they can be kept separate from the bankruptcy estate, thus eliminating counterparty risk. This creates clear ownership rights for customers, making Switzerland an extremely attractive location for custody services. In the US, meanwhile, the legal basis for the treatment of digital assets under insolvency law is still in flux. The joint statement by the US banking regulators gives the banks certainty that the safekeeping of digital assets is subject to the existing standards. However, it doesn’t clarify whether digital assets held by customers are protected when a bank becomes insolvent. Closing this gap remains an important task for the further development of the US regulations.  

Q: So Switzerland is still one step ahead here. What role does market access play for a bank like Sygnum in this respect? Is the idea of exporting services to the US and developing that market becoming more attractive? 

A: Generally speaking, market access is essential for an internationally oriented bank like Sygnum, but a broad cross-section of the Swiss economy is dependent on open markets too. The domestic customer base is limited, and many business models can’t be adequately scaled in Switzerland alone. Switzerland traditionally has a range of advantages: a high level of confidence in its brand, a reputation for innovation and multilingual skills, all of which boost demand for Swiss services. The US financial market, the biggest in the world, is naturally more open and thus more attractive thanks to current developments and clear rules of engagement.

Q:…and Sygnum has an international presence outside Switzerland.  

A: Yes, although we’re aware of the increased legal and regulatory risks that the US market in particular entails and, at least for now, choose not to be exposed to them. On top of this, despite its enhanced appeal, the entry barriers must not be ignored. The US has a complex system of regulation split between the federal and state levels. That said, we benefit indirectly from the positive developments around increasing regulatory certainty in the US as they are helping to professionalise and institutionalise the industry. For the time being, we’re keeping a close eye on the US market in case opportunities arise for technology partnerships in bank-to-bank business.

Q: How should Switzerland manage its relations with the EU and the US in order to promote open markets and mutual access agreements? 

A: Regardless of region, we want open markets and mutual access agreements. Switzerland should work on gaining international recognition and equivalence. Agreements with the EU along the lines of the UK MRA could be concluded to make it easier for Swiss banks to offer cross-border services. Sadly, however, the latest developments suggest that a different path is being taken. Dialogue with the US could also be sought, for example, to give access to “compliant foreign stablecoin issuers” from Switzerland. Interestingly, the new US GENIUS Act on stablecoins includes exemptions for foreign issuers that meet comparable standards. As an active representative of the industry and SBA member, we would support such talks. We put our views forward recently at a meeting with Representative French Hill, Chairman of the House Committee on Financial Services.

Q: According to FINMA, there are currently about 40 financial institutions in Switzerland operating in the field of digital assets. What do banks and other regulated market participants have to factor into their strategies if they want to grow their digital assets footprint or simply start offering blockchain-related financial services in the first place? 

A: That’s right, and the number’s growing steadily. Sygnum is already serving more than 20 Swiss banks that have realised the growing importance of digital assets. Many banks are currently seeing outflows of assets in favour of new, less strictly regulated players. Switzerland’s experience shows that pioneers are rewarded. Of course, it’s important not to get carried away. You have to strike the right balance between innovation and risk management, and you should seek dialogue with the regulator at the earliest possible stage. The task of building up know-how in blockchain and digital assets, as well as risk management and compliance in particular, should not be underestimated. Another major challenge is the technical infrastructure that makes safekeeping and trading possible. On top of this is the classic “make or buy” question. A positive attitude towards innovation is essential. Digital assets should be seen as an opportunity to create new income streams, attract customer assets, target a younger clientele and increase efficiency (for instance through automation using smart contracts). If you share this vision and implement it strategically, you can sustainably grow your footprint.

Q: What can Switzerland do better to maintain its lead in regulated financial services involving digital assets? Can you name three specific actions you would like to see from the authorities, the industry and/or the SBA in the coming months? 

A: At the moment, Switzerland still enjoys a good position in regulated financial services involving digital assets. To secure this position and build on it, I think three specific measures are needed:

Clear rules for digital currencies: The legal framework for digital currencies such as deposit tokens and stablecoins is vital. For example, there’s a lack of coherent regulations that promote innovation without unnecessary hurdles, even though Switzerland in principle has the legal instruments needed for these. In my view, digital currencies are a key to digital payments and to ensuring that the financial centre remains competitive. The goal must be to embed the Swiss franc in the digital space, be it with a stablecoin or a deposit token like the one recently tested by the SBA and three banks, before international offerings take over.

International market access: As a small, export-oriented economy, market access is crucial to Switzerland. Swiss banks should be able to offer their services in other markets (especially the EU and US) without being hampered by a slew of dual regulation. This requires equivalence agreements and a proactive effort by the Swiss public sector in international bodies. We need to investigate the possibility of regulatory cooperation, for example through joint standards in relation to the travel rule or technical security standards. We should also share information with financial centres in Asia and, wherever possible, conclude agreements with them on the mutual recognition of rules. This “digital asset diplomacy” is by no means a simple or short-term measure, but it’s strategically important if the financial centre is to keep pace with the rest of the world.

Engagement in the debate on the “Basel crypto standard”: The Basel Committee on Banking Supervision (BCBS) adopted a set of standards in 2022 that set out how banks should manage and disclose the risks associated with digital assets. The restrictive qualification requirements, combined with punitive capital requirements for market and credit risks, effectively make it economically unviable for banks to participate in the market for digital assets to any meaningful degree. That said, the proposed standard has changed significantly since 2022 and has now become too conservative, which is why international banking and capital market associations recently called on the BCBS to work on a recalibration. The discussion needs to be held in Switzerland too in the coming months. 

To sum up, I can say that Switzerland is very well positioned on the whole. It moved quickly and took on a pioneering role with clear rules. The US statement basically confirms practices that are already firmly established in Switzerland: prudent risk management, compliance with all rules and customer protection in the safekeeping of digital assets. Both regimes take a “same risk, same rules” approach. However, it must be noted that Switzerland’s lead has slipped somewhat. We need to take the bull by the horns and remain vigilant. Other jurisdictions are developing their regulations at a fast pace. In areas such as stablecoins and decentralised finance in particular, we need to ensure clarity in order to build on our leadership role. 

Many thanks for talking to us, Stephan. We’re excited to see what happens next in this fast-moving field and wish you every success!