Regulatory Framework — a part of the book Zug: The Making of a Global Hub by Dr Alexander Ressos.
After Part G told the story of Crypto Valley, this part examines the law that governs it. Switzerland has not adopted a single code for crypto-assets and Digital Assets. It has applied its existing financial market law to them and adapted that law in targeted steps, with the result that the framework is technology-neutral in principle and detailed in practice. Chapter I sets out how the general financial market laws apply to tokens and to crypto service providers. Chapter II examines the DLT Act of 2020 and its changes to private law, insolvency law and market infrastructure law. Chapter III looks at the reforms under way, at the European Union's MiCA regime and at the position of Zug in the international regulatory competition. Because Swiss financial market regulation is federal, the canton of Zug has no regulatory powers of its own in this field, but its commercial register, its tax administration and its courts apply the federal rules to the companies that settle there.
This part belongs to Zug: The Making of a Global Hub by Dr Alexander Ressos, published here in full, section by section.
Financial Market Law and Crypto-Assets — conclusion
Swiss financial market law applies to crypto-assets and Digital Assets according to their economic function. Read more Zug · Regulatory FrameworkThe principle of technology neutrality
Swiss financial market law regulates activities and instruments by their economic function without asking which technology an institution uses. Read more Zug · Regulatory FrameworkThe token classification in practice
FINMA's classification of tokens into payment tokens, utility tokens and asset tokens remains the starting point of every analysis, although its application has become more refined since 2018. Read more Zug · Regulatory FrameworkBanking law: deposits and custody
The Banking Act prohibits persons who are not banks from accepting deposits from the public on a professional basis. Read more Zug · Regulatory FrameworkSecurities law: prospectus and trading
The Financial Services Act, in force since 1 January 2020, requires a prospectus for public offers of securities in Switzerland and for the admission of securities to trading on a trading venue,… Read more Zug · Regulatory FrameworkFinancial institutions: securities firms and asset managers
The Financial Institutions Act of 2018, in force since 2020, regulates securities firms, fund management companies, managers of collective assets, portfolio managers and trustees. Read more Zug · Regulatory FrameworkAnti-money-laundering law
The Anti-Money Laundering Act of 1997 applies to financial intermediaries, which it defines to include persons who professionally accept or hold assets belonging to others, or who assist in their… Read more Zug · Regulatory FrameworkCollective investment schemes and staking
Some crypto business models resemble collective investment schemes. A provider that pools the crypto-assets of several clients and invests them according to a strategy may be operating a fund. Read more Zug · Regulatory FrameworkMarket integrity and enforcement
The rules against insider dealing and market manipulation in the Financial Market Infrastructure Act apply to securities admitted to trading on a Swiss trading venue. Read more Zug · Regulatory FrameworkThe cantonal role in Zug
The canton of Zug has no competence to regulate financial markets, although its authorities play a part in the legal framework of the crypto industry. Read more Zug · Regulatory FrameworkThe early practice of FINMA (2014–2017)
FINMA's approach to crypto-assets developed in stages before the ICO guidelines of 2018. Read more Zug · Regulatory FrameworkCriminal law and crypto-assets
Swiss criminal law protects crypto-assets and Digital Assets through its general provisions. Read more Zug · Regulatory FrameworkSanctions law
Swiss sanctions law applies to crypto-assets in the same way as to other assets. The Embargo Act authorises the Federal Council to adopt measures that implement sanctions of the United Nations, the… Read more Zug · Regulatory FrameworkData protection and the blockchain
The revised Federal Act on Data Protection entered into force on 1 September 2023 and applies to the processing of personal data by private persons and federal bodies. Read more Zug · Regulatory FrameworkCapital and risk management at crypto banks
A bank that holds crypto-assets on its own balance sheet or in custody for clients faces specific risks. The market risk of volatile crypto-assets can be large. Read more Zug · Regulatory FrameworkPayment systems and the National Bank Act
The National Bank Act gives the Swiss National Bank oversight of systemically important payment systems and securities settlement systems. Read more Zug · Regulatory FrameworkDeposit protection and investor compensation
Clients of Swiss banks are protected by the deposit guarantee scheme up to 100,000 francs per client and bank. The scheme covers deposits in francs and foreign currencies. Read more Zug · Regulatory FrameworkPractitioner's note: the regulatory analysis of a crypto business in Switzerland
An adviser who analyses the regulatory position of a crypto business in Switzerland typically proceeds in four steps. Read more Zug · Regulatory FrameworkThe DLT Act and Private Law — conclusion
The DLT Act of 2020 adapted Swiss law to distributed ledger technology without creating a special crypto law. Read more Zug · Regulatory FrameworkThe legislative process
The Federal Council's report of December 2018 concluded that Swiss law was generally suitable for distributed ledger technology but identified gaps in three areas: the transfer of rights by means of… Read more Zug · Regulatory FrameworkLedger-based securities
The centrepiece of the Act in private law is the ledger-based security, in German Registerwertrecht. Read more Zug · Regulatory FrameworkThe registration agreement and the issuer's liability
The registration agreement is the contractual basis of a ledger-based security. It must provide that the right is registered in the securities ledger and can be exercised and transferred only through… Read more Zug · Regulatory FrameworkCrypto-assets in bankruptcy
The second main area of the Act is insolvency law. Before the Act, it was uncertain whether crypto-assets held by a custodian for its clients belonged to the clients or to the bankruptcy estate of… Read more Zug · Regulatory FrameworkThe bankruptcy of a crypto custodian in practice
The rules have been tested in practice. The international collapses of 2022 showed the importance of clear segregation. Read more Zug · Regulatory FrameworkThe DLT trading facility
The third area of the Act is market infrastructure, where the Act created a new type of financial market infrastructure in the Financial Market Infrastructure Act: the DLT trading facility. Read more Zug · Regulatory FrameworkDLT securities and the Anti-Money Laundering Act
The Act defines DLT securities as securities in the form of ledger-based securities or other uncertificated securities held in distributed electronic registers that give the creditors power of… Read more Zug · Regulatory FrameworkPrivate international law
Crypto-assets move across borders by design. Because the question which law governs a ledger-based security or a token transfer arises in every cross-border case, the DLT Act amended the Private… Read more Zug · Regulatory FrameworkTokens that are not securities
The DLT Act did not regulate the private-law status of payment tokens and other tokens that do not represent a right against an issuer. Read more Zug · Regulatory FrameworkThe DLT Blanket Ordinance
The Federal Council adopted an ordinance to implement the DLT Act, known as the DLT Blanket Ordinance, which amended several ordinances, among them the Banking Ordinance, the Financial Market… Read more Zug · Regulatory FrameworkLedger-based securities in corporate practice
The use of ledger-based securities for shares raises practical questions of company law. Read more Zug · Regulatory FrameworkCollateral and the pledge of crypto-assets
Crypto-assets are increasingly used as collateral. Clients of crypto banks borrow against their Bitcoin or ether, while traders post crypto-assets as margin on derivatives exchanges. Read more Zug · Regulatory FrameworkDebt enforcement against crypto-assets
Creditors who wish to enforce a claim against a debtor who holds crypto-assets face practical obstacles. Read more Zug · Regulatory FrameworkSuccession and crypto-assets
Crypto-assets raise particular problems in succession. The heirs of a deceased person acquire the estate by operation of law, including the crypto-assets, although they can access self-custodied… Read more Zug · Regulatory FrameworkTokenised funds and the L-QIF
Since 1 March 2024, Swiss law has allowed the establishment of limited qualified investor funds, known as L-QIF. Read more Zug · Regulatory FrameworkThe DLT Act in the courts
The courts have so far had few occasions to interpret the DLT Act. The ledger-based security has been used mainly in transactions without disputes. Read more Zug · Regulatory FrameworkAn assessment of the DLT Act
Five years after its entry into force, the DLT Act can be assessed. Its legal achievements are considerable. Read more Zug · Regulatory FrameworkConsumer protection and the retail investor
The DLT Act did not contain specific rules for the protection of retail investors in crypto-assets, so that such protection results from the general laws. Read more Zug · Regulatory FrameworkTax consequences of the DLT Act
The DLT Act did not change tax law, although its instruments have tax consequences that practitioners must consider. Read more Zug · Regulatory FrameworkPractitioner's note: issuing tokenised shares in a Zug company
A Zug company that wishes to issue its shares as ledger-based securities should consider the following points. Read more Zug · Regulatory FrameworkReform, MiCA and the Regulatory Competition — conclusion
After the DLT Act, Swiss crypto regulation has entered a second phase of reform. The proposed licences for payment instrument institutions and crypto institutions would bring stablecoin issuers and… Read more Zug · Regulatory FrameworkThe unfinished agenda after the DLT Act
The DLT Act solved the problems that the Federal Council had identified in 2018, although the market soon raised new ones. Read more Zug · Regulatory FrameworkThe proposed payment instrument institution and stablecoins
The proposed licence for payment instrument institutions is intended to replace the fintech licence of the Banking Act. Read more Zug · Regulatory FrameworkThe proposed crypto institution
The second proposed licence is for crypto institutions. It would cover the custody of crypto-assets for clients and trading in crypto-assets that are not securities, such as payment tokens and… Read more Zug · Regulatory FrameworkThe European Union's MiCA regime
The European Union adopted the Regulation on Markets in Crypto- Assets in May 2023, the first comprehensive regime for crypto-assets in a large economic area. Read more Zug · Regulatory FrameworkComparing the Swiss and European approaches
The Swiss and European approaches differ in method. MiCA is a special regime for crypto-assets that supplements the existing financial services law of the Union, whereas the Swiss framework applies… Read more Zug · Regulatory FrameworkThe Basel standard on banks' crypto exposures
The Basel Committee on Banking Supervision adopted a standard on the prudential treatment of banks' exposures to crypto-assets in December 2022 and amended it in 2024. Read more Zug · Regulatory FrameworkTax transparency and the CARF
Switzerland has decided to implement the OECD Crypto-Asset Reporting Framework together with amendments to the Common Reporting Standard. Read more Zug · Regulatory FrameworkDecentralised finance and the limits of regulation
Decentralised finance poses a challenge to every regulatory regime. A protocol that allows users to lend, borrow and trade crypto-assets through smart contracts without an intermediary has no… Read more Zug · Regulatory FrameworkZug in the regulatory competition
The regulatory framework is one of the main factors in the international competition between crypto hubs. Read more Zug · Regulatory FrameworkLiechtenstein: the neighbour as a gateway
Liechtenstein adopted its Token and Trustworthy Technology Service Provider Act in October 2019 and brought it into force on 1 January 2020. Read more Zug · Regulatory FrameworkSingapore and Hong Kong
Singapore regulates crypto service providers under the Payment Services Act of 2019, which introduced a licence for digital payment token services. Read more Zug · Regulatory FrameworkDubai and Abu Dhabi
The United Arab Emirates have created several regimes for crypto-assets. Abu Dhabi Global Market, a financial free zone with its own common law courts, introduced a framework for crypto-assets in… Read more Zug · Regulatory FrameworkThe United Kingdom and the United States
The United Kingdom has built its crypto regime in stages. Since 2020, crypto service providers have had to register with the Financial Conduct Authority for anti-money-laundering purposes. Read more Zug · Regulatory FrameworkLessons for Switzerland
The international comparison suggests several lessons for Switzerland. The first is that regulatory clarity has become a common good. Read more Zug · Regulatory FrameworkThe instruments of FINMA's practice
FINMA's practice relies on instruments that shape the market without being laws. Its guidance notices, called Aufsichtsmitteilungen, explain how FINMA applies the law in specific areas. Read more Zug · Regulatory FrameworkSwitzerland, the European Union and financial market access
The relationship between Switzerland and the European Union frames the question of market access for the crypto industry. Read more Zug · Regulatory FrameworkThe Swiss position in international standard setting
Switzerland takes part in the international bodies that set standards for crypto-assets. Read more Zug · Regulatory FrameworkThe future of the Swiss framework
The Swiss framework for crypto-assets and Digital Assets will continue to develop over the coming years. Read more Zug · Regulatory FrameworkPractitioner's checklist: Swiss regulatory questions for a crypto business
The following checklist summarises the regulatory questions that a crypto business in Zug should address, complementing the checklist on the structuring of token projects at the end of Part G. Read more