Distributed Ledger Technology Legislation in Switzerland
Prof. Dr. iur. Cornelia Stengel, Attorney at Law September 2021
#FinTank – Thinking Fin, Tec & Reg The #FinTank is a unique, interdisciplinary and independent centre of excellence for legal and regulatory issues relating to innovation in the financial sector. It is headed by Cornelia Stengel and focuses on application-oriented research, i.e. workshops, projects and studies are carried out together with companies and associations from the financial sector, which provide scientifically sound answers to questions relevant in practice. Current focal points are: Open Finance, Payment Systems and Tokenisation/DLT. Following presentation focusing on the civil law part of the new DLTLegislation in Switzerland.
DLT Legislation Switzerland: Two Parts, Three Topics
1st August 2021
Second part of DLT Legislation into force 1st February 2021
First part of DLT Legislation into force • 1. Topic: Ledger-Based Securities (Registerwertrechte) • Possibility to transfer rights/claims in a purely digital way without the involvement of an intermediary (or a central custodian)
• 2. Topic: DLT Trading Facilities, i.e. financial market infrastructures for DLT securities that can admit other companies and persons to trading in addition to financial intermediaries • 3. Topic: Regulated segregation of cryptobased assets in the event of bankruptcy
Transfer rules in Switzerland
...differ depending on the content to be transferred
#FinTank FHNW
• Transfer of ownership (“Besitz”) or constitution (“Besitzanweisung”) • Legal reason (“Rechtsgrund”)
• Assignment in written (!) form (except intermediated security, “Bucheffekten”)
Objects
Claims/rights
• “Immaterielle Vermögenswerte” • No legal requirements
• New: transfer of a ledger-based security on DLT/blockchain
Other intangible assets
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Transfer of rights/claims development Investor Investor A A
Collective custody (Sammelverwahrung) - large number of certificated securities delivered
Issuer
Wertpapie Wertrpapie Wertrpapie Wertrpapie Wertrpapie r Certificate d security
Custodian
(«Verwahrungsstelle»)
Investor Investor B B Investor Investor C C Investor Investor D D
- Transfer according to property law (“Sachenrecht, Besitzanweisung») - Protection of legitimate expectations in accordance with the principles of property law
#FinTank FHNW
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Transfer of rights/claims development Investor Investor A A
Global certificate (Globalurkunde) - One single certificate as a certificated security - Co-ownership of the participating investors in proportion to their participation
Issuer
Global certificate
Custodian
(«Verwahrungsstelle»)
Investor Investor B B Investor Investor C C Investor Investor D D
- Transfer according to property law (“Sachenrecht, Besitzanweisung») - Protection of legitimate expectations in accordance with the principles of property law
#FinTank FHNW
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Transfer of rights/claims development
Simple uncertificated security (Wertrecht) - claims within the meaning of the Code of Obligations - Established upon entry in the issuer's book - Transfer in accordance with the Swiss Code of Obligations by (written!) assignment - No protection of good faith in the right of assignment
#FinTank FHNW
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Transfer of rights/claims development
Intermediated security (Bucheffekte) - Established by deposit of certificated securities or registration of simple uncertificated securities and credit to securities account by central custodian - Transfer in accordance with Intermediated Securities Act by booking by central custodian - Protection of good faith
#FinTank FHNW
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Transfer of rights/claims development Certificated security (Wertpapier)
Ledger-based security (Registerwertrecht) - Established by issuing of a ledger-based security - Transfer in accordance with the rules of the registration agreement for the respective securities ledger between two parties without the involvement of an intermediary (or a central custodian)
Wert -Wert papie-Wert rpapierpapie r
C.S.
Handover of certificate
Simple uncertificated security (Wertrecht)
Intermediated security (Bucheffekte)
S.U.S.
Written assignment
Ledger-based security (Registerwertrec ht)
I.S.
Change of booking entry by central custodian
L.-B.S.
Transaction on securities ledger (DLT)
- Protection of good faith
#FinTank FHNW
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Securities ledger (Wertrechteregister) Power of disposal with creditor
(Verfügungsmacht beim Gläubiger)
Resistance to manipulation Registration Agreement
Publicity
#FinTank FHNW
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DLT Trading Facility (DLT-Handelssystem) • Multilateral trading of DLT securities, with simultaneous exchange of offers among several participants - whereby natural persons (retail clients) may also be admitted - and conclusion of contracts according to non-discretionary rules. • Uniform financial market infrastructure that can offer post-trade services with DLT securities (custody as well as settlement and clearing) in addition to trading services. • No acting as central counterparty for DLT securities allowed. • In terms of ancillary services, non-securities (e.g. payment tokens such as Bitcoin etc.) can also be traded in addition to DLT securities. • Reminder: a DLT trading facility may also be considered a financial service provider within the meaning of the Financial Services Act, depending on the activity provided in the individual case.
Overview Trading Facilities Exchange (Börse)
Multilateral Trading Facility (MTF)
Authorisation requirement
Yes
Type of trade
Multilateral
What is traded
Securities (with listing)
How is traded
Securities (without listing)
Non-discretionary (without discretionary decisions by platform operators)
Participants
Only (in accordance with the regulations of the trading venue): - Securities firms - FINMA supervised - FINMA-approved foreign participants - SNB
Examples
-
SWX Swiss Exchange BX Swiss AG SDX Foreign recognised exchanges
- SIX Repo AG - Foreign recognised MTS
Organised trading facility (OTF)
DLT Trading Facility
Indirect (operation only by bank, securities firm, trading venue)
Yes, for centralised and decentralised platforms (No, for peer-to-peer [distributed] platforms)
Multilateral or Bilateral
Multilateral
Securities and financial instruments
DLT-securities (Ledger-based securities) or similar instruments (essentially security tokens)
Discretionary and Non-discretionary
Non-discretionary
No restrictions (also retail customers)
No restrictions (also retail customers)
- OTC-X (BEKB; new: SMEX) - ZKB eKMU-X - Lienhardt & Partner
OPEN
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DLT Trading Facilities and Alternatives Description
Authorisation requirement under the Financial Market Infrastructure Act
Central trading platform
• Connection of participants on central network/server • Transaction is processed by platform • Platform has power of disposition over DLT securities
If tokens = securities: Licensing requirement: > DLT trading facility
Decentralised trading platform1
• No central network/server, participants have their own copy of the data • Participants "meet" on platform • Participants can transact on their own, without the involvement of the platform. • Platform mediates between buyer/seller
If tokens = securities: Licensing requirement: > DLT trading facility
Peer-to-peer trading platforms ("distributed")
• No central network/server, participants have their own copy of the data • No "meeting" on a platform, no mediation by platform • Upstream e.g. bulletin board
No authorisation requirement (irrespective of whether securities or not)
Bulletin Board (Course Information System)
• Allows advertising for sellers and buyers • No conclusion of a transaction • Conclusion of contract takes place downstream, e.g. on peerto-peer trading platform
No authorisation requirement (for the distinction from OTF, see FINMACirc. 2018/1 OTF)
Marketplace organised by issuer
• Issuer fulfils requirements for issuance (e.g. prospectus), organises subsequent trading itself • No commercial activity
No authorisation requirement
1
Terminology according to Federal Council report, December 2018, p. 106 < https://www.newsd.admin.ch/newsd/message/attachments/55150.pdf>.
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Cornelia Stengel Prof. Dr. iur. Attorney at Law Top ranked for FinTech in Chambers and Legal500
Cornelia Stengel is a lawyer for financial market and data protection law with special experience in the legal analysis of new products, systems and technologies on the financial market (FinTech). She brings her practical experience to the scientific community as a guest professor and project manager of the interdisciplinary #FinTank at the FHNW and lecturer at various universities. In addition, Cornelia Stengel is involved in working groups and associations related to her fields of activity, for example in her function as Co-Director of Swiss Fintech Innovations (SFTI), as a member of working groups of economiesuisse or as a member of the Swiss Blockchain Federation. As an expert, she supports the Federal Administration in connection with the drafting of the DLT legislation and is elected as a permanent guest of the Swiss Bankers Association (SBA) Commission on Digitization. cornelia.stengel@fhnw.ch