Swiss legislation makes digital cash possible
The Swiss Federal Banking Act (SFBA) stipulates that only banks are permitted to accept deposits from the public on a professional basis. Accordingly, any individual or legal entity intending to accept assets from third parties on a professional basis must in principle obtain a banking license before commencing business activities. The Banking Ordinance (BO) provides for a number of exceptions where accepting assets on a professional basis does not constitute accepting public deposits. Effectively, this implies that, subject to certain conditions, no banking license is required for a third-party processor like Payment21®.
This is the case, for instance, if the assets in question are accepted only as consideration in respect of the acquisition of property and the procurement of services. In accordance with Swiss regulator's practice, this exception applies to the operation of means of payment and payment systems that serve solely to procure goods or services. Accepting assets in order to enable payment with said means of payment or payment systems is permissible without a banking license if a client's credit balance does not exceed CHF 3,000.00 or the equivalent in any other currency and if no interest is paid on it. Furthermore, the BO states that assets transferred to settlement accounts on which no interest is paid do not constitute public deposits. Settlement accounts are understood to be accounts that serve solely to settle client transactions, i.e. to provide the necessary liquidity to settle the underlying primary transaction.
The Swiss Banking regulations assume in principle that all liabilities have the character of a deposit conclusively listing the exceptions:
- Third-party Monies without the Character of a Loan or Deposit: "Monies which constitute the contractual consideration for the transfer of property or for the provision of services or are transferred as security. For example, advance payments in respect of a purchase contract, advance payments for an order, rental deposits, etc."
- Settlement Accounts: "Credit balances on customer accounts of security, currency and precious metal brokers, asset managers or similar enterprises, which exist solely in order to execute customer transactions, so long as no interest is paid thereon." Such accounts are for the sole purpose of maintaining the necessary liquid funds available for the settlement of the main business at the forefront of attention. The rapid turnover and limitation of the volume of such monies should be ensured by the applicable credit interest ban for such monies.
- Payment Means and Swiss Payment Systems: "Monies which feed into a means of payment or a payment system (payment cards, possibilities to pay per Internet or mobile phone, etc.) do not have the character of a deposit, provided that they only are used for acquisition of goods and services, the maximum credit balance per customer per issuer of a payment instrument or provider of a payment system does not exceed CHF 3,000.00 or the equivalent in any other currency and no interest is paid upon them."
Simply put, according to the Swiss Financial Supervisory Authority (FINMA), operating an online payment system does not necessarily require a banking license. In general, the acceptance of deposits from the public is restricted to authorized banks. However, the law permits the transfer of funds of up to CHF 3,000.00 per customer via payment systems such as mobile phones or Internet e-wallets. Such funds must only be used for the purchase of goods and services and shall not yield interest. This policy is set out in the FINMA Circular 08/3 Public Deposits with Non-banks.
According to FINMA, buying bitcoins via an online trading platform does not constitute an acquisition of goods or services. Instead, the buyer acquires a new means of payment, which in turn can be used to procure goods or services. Consequently, an operator of a bitcoin trading platform (like a fully-fledged bitcoin exchange) cannot benefit from the banking license exemption. At the same time, bitcoins qualify as a means of payment or payment system if the payment directly serves to procure goods or services. This is the case, for instance, if bitcoins are used to pay for goods and services online whereby the third-party operator (e.g. Payment21®) transfers the payment from a consumer to a merchant. Accordingly, the decisive factor in determining whether the operation of a platform requires a banking license is whether or not the operator’s accounts, into which client’s assets are transferred, qualify as settlement accounts.
Merchant accounts provided by Payement21® qualify as settlement accounts, thus merchants can accept unlimited amounts of digital cash. In the event of accepting funds (i.e. legal tender) without any underlying sales transaction related to goods or services, clients are restricted to the aforementioned threshold. Swiss legislation leaves crypto transactions for the purpose of banking, including financial speculation with considerable sums, to Swiss banks, while payments related to the real economy can be processed through specialized service providers. This two-tiered legal framework provides security to investors dealing with banks and ensures protection for clients doing business with non-banks acting as financial intermediaries.
Furthermore, any professional third-party processor qualifies as a financial intermediary within the meaning of the Swiss Anti Money Laundering Act (AMLA). This applies in particular to platforms for which the operator accepts assets from clients on the operator’s own accounts for the purpose of passing them to the seller and for which the requirements for assuming settlement accounts are met.
Individuals and legal entities qualify as financial intermediaries if they
- Transfer liquid financial assets on behalf of a contractual party to a third party and have these assets credited to their own account or arrange for the assets to be transferred on behalf of the contractual party and in the contractual party’s name, i.e. have power of attorney over the contractual party’s account
- Operate a currency exchange in that an amount in one currency is exchanged for the equivalent amount in another currency
- Carry out the transfer of money or assets (money transmission) by accepting cash, checks or other means of payment and paying out corresponding sums in cash or by effecting non-cash or wire transfers or by using a payment or account settlement system