Swiss Financial Market Supervisory Authority Grants Its First Authorization to a Crypto Company

October 19

Crypto Fund AG, a subsidiary of Swiss-based Crypto Finance AG, received authorization from the Swiss Financial Markets Supervisory Authority (FINMA) to act as an Asset Manager defined under the Swiss Collective Investment Schemes Act (CISA). The Press Release from Crypto Finance AG states that Crypto Fund AG, now being an authorized Asset Manager, is permitted to “manage and distribute domestic and foreign investment funds to qualified investors and provide investment advice for institution clients.”

This authorization, being the first of its kind in Switzerland for a crypto-related company, is an important development in Switzerland’s progress as a friendly but regulated environment for companies in the blockchain space. However, it is important to recognize the role, and limitations, of an Asset Manager relative to other authorized roles under CISA.

Fund Management companies (not to be confused with Asset Managers) as administrator of investment funds for the account of investors and are responsible for, among other things, selecting investments for its investors. Swiss-based Fund Management companies require authorization from FINMA. Once obtained, Fund Management companies are permitted to delegate certain activities where appropriate but, when a Fund Management company seeks to delegate investment decisions, it may delegate those decisions only to a FINMA-authorized Asset Manager(unless an exception exists).

Asset Managers may also provide portfolio and risk management services and perform any related administrative tasks.  In order to obtain authorization as an Asset Manager, FINMA will require, among other things, that:

  1. the Asset Manager is organized as a suitable legal entity under Swiss law with appropriate organization;
  2. minimum equity capital and financial guarantees are met; and
  3. the entity’s governing documents include a factually and geographically accurate description of its proposed operations.

Asset Manager of collective investment schemes are exempt from the authorization requirement if:

  1. The Asset Manager is managing foreign collective investment schemes whose investors are deemed to be Qualified Investors. However, such foreign collective investment schemes cannot exceed CHF100 million including leveraged assets or CHF500 million for non-leveraged assets where investors cannot exercise termination and redemption rights for a period of five years (closed-end fund).
  2. The Asset Manager is managing a collective investment scheme whose investors are deemed to be Qualified Investors and consist solely of companies belonging to the same financial group as the Asset Manager.

Generally speaking, Qualified Investors include regulated financial intermediaries (e.g., banks), public entities and retirement benefits institutions with professional treasury operations, companies with professional treasury operations, independent (unregulated) asset managers who act under discretionary management mandates for high net wealth individuals who have each opted to be considered as Qualified Investors, and private individuals who qualify as sophisticated investors (i.e., proven financial experience and holding CHF0.5 million of financial assets or holding at least CHF5 million of financial assets).

The above serves only as a brief summary about the otherwise nuanced and specific rules under the CISA. In any case, the authorization of Crypto Fund AG in Switzerland offers a good opportunity for companies seeking to establish crypto-related business in a reputable jurisdiction.

Yves Mauchle is an associate in the Corporate Finance practice area in Zurich. He focuses on debt and equity capital markets as well as financial services regulation. Yves regularly represents financial intermediaries and other clients on regulatory matters and advises on the particular challenges posed by fintech business models, including ICOs.
Christopher Murrer is an associate in the International Tax and Wealth Management practice groups of Baker McKenzie Zurich. He joined the Firm after practicing for seven years as a domestic tax and estate planning attorney in New York and Washington, DC.

Categories

Location