On August 20, 2019, the Swiss Banking Association (“SBA”) released guidelines for member banks (in German with Italian, French and English versions to follow) about opening company accounts for companies with a nexus to distributed ledger technology (“DLT”). These guidelines update the SBA’s guidelines from September 21, 2018.
The guidelines outline what banks should require of DLT-nexus companies in the account opening process to address risk management related to issues such as anti-money laundering (“AML”). They are also relevant to DLT-nexus companies because they inform how these companies can prepare for the account opening process and avoid unnecessary delays. In other words, the guidelines offer predictability for all parties with respect to the account opening process.
The guidelines take a differentiated approach to account opening for DLT-nexus companies depending on whether the company raised funds through a token generating event (“TGE”), and whether fiat currency or cryptocurrencies were accepted during the TGE. The guidelines also address certain specific business models in the DLT industry. The following is a brief summary of the more prominent points made in the guidelines. It is not an exhaustive list of the requirements.
- DLT-nexus companies without a TGE: Companies with a nexus to DLT but that have not raised capital through a TGE should generally be subject to the same (strict) processes and standards as other similarly sized companies. As such, to fulfil their duty to cooperate in opening a bank account, the company must provide a meaningful business plan that demonstrates, namely, knowledge of and compliance with relevant regulations. The company may also be required to describe, among other items, expected cash flow, business intentions, planned usage of capital and expected income.
- DLT-nexus companies with a TGE: Companies with a nexus to DLT that also raise capital through a TGE are subject to the same requirements as stated above plus additional, stricter requirements. The guidelines differentiate further between DLT-nexus companies that raise capital by accepting fiat currency and those that accept cryptocurrencies (such as Bitcoin or Ether). DLT-nexus companies that accept cryptocurrencies during a TGE will have another layer of requirements.
All DLT-nexus companies that organized a TGE will need to provide information regarding their liquidity planning, including the composition of their fiat and individual cryptocurrency holdings. The companies will also need to provide a description of the tokens offered in accordance with FINMA’s February 16, 2018 guidelines and their plans to comply with laws of the foreign countries where their tokenholders reside — including securities laws of other countries if the token constitutes a security. These companies will also need to provide an anti-money laundering act (“AMLA”) statement or, if one was not prepared, an explanation for the lack of an AMLA statement.
For companies that accepted cryptocurrencies during their TGE, another set of requirements should be applied. The guidelines suggest that the acceptance of cryptocurrencies during a TGE may be treated like a spot transaction (that is, an exchange of currencies at the prevailing market rate) and, consequently, be subject to risk mitigation and information gathering requirements. Furthermore, these companies should demonstrate compliance with Swiss standards for origin of funds (KYC) and the AMLA. For example, issuers of payment-type tokens should demonstrate compliance with video and online identification ALMA rules.
- Specific Business Models: The guidelines describe several examples of specific business models that are subject to AML rules:
- Wallet providers that take custody of customer’s private keys or allow customers to send and receive cryptocurrencies.
- Trading platforms that have access to customers’ private keys or effect trades based on smart contracts.
- Exchange offices that offer professional services on behalf of customers to purchase and sell cryptocurrencies in return for fiat currency or other cryptocurrencies.
- Cryptocurrency-based funds that invest exclusively in crypto-based assets but nonetheless qualify as collective investment schemes will be subject to the same AML rules applicable to collective investment schemes.
In general, the guidelines foster the reputable blockchain-friendly environment in Switzerland and offer predictability for all parties involved. It is fair to say, however, that Swiss banks remain free to apply these guidelines and/or adopt other, maybe stricter, rules for the account opening process of DLT-nexus companies.