The crypto-nation Switzerland grants banking licenses to its first official crypto banks which offer services for institutional and professional clients. The FINMA licenses are subject to various conditions. In addition to the requirements for traditional banks, crypto banks must comply with further responsibilities, particularly in the areas of combating money laundering and terrorist financing, know your customer and corporate governance (know-how and experience in crypto and block-chain areas).
Central elements of the authorisation requirements
To ensure that the new banks comply with the additional responsibilities when handling crypto currencies and other digital assets, FINMA requests them to comply with strict regulatory requirements, which are usually applied to larger banks. With this approach, FINMA continues to apply its principle-based financial market regulation. FINMA is specifying the regulatory approach as follows:
- Adequate capitalisation to cover the additional risks associated with crypto assets;
- Solid business plan;
- Policies with strict implementation of effective prevention of money laundering and terrorist financing, including transaction monitoring tailored to crypto risks;
- Development of an adequate risk management;
- Strong corporate governance with sufficient crypto and blockchain know-how and appropriate experience in the board of directors and executive management (as usually only required for larger banks);
- Focus on key competencies (e.g. institutional and professional clients) and outsourcing of specialist knowledge to external suppliers (e.g. crypto-compliance & risk management);
- Compliance with FINMA accounting regulations for crypto currencies.
Approval procedure – marathon and sprint
The process of obtaining a license is demanding and complex. An approval procedure is like a marathon, but the applicant must always be prepared for a sprint. These three key points need to be addressed in any case for a successful project:
- Appoint the license application auditor at the start of the project. Together with the license application auditor, key points of the project should be explained to FINMA at an early stage.
- Provide evidence to FINMA that an effective and efficient mechanism will be installed to fight money laundering and terrorist financing in connection with crypto currencies.
- Maintain an open and transparent communication with FINMA’s licensing department during the entire FINMA authorisation procedure.
Other key elements for a successful licensing project are a founder team with banking experience and a feasible vision. A foundation of a new company allows new paths to be taken. In particular the development of a tailor-made infrastructure on a “greenfield site” can be a decisive competitive advantage for the future.
The strict adherence to FINMA’s guidance on obtaining a bank or securities dealer license will ensure that the licensing process is heading in the right direction.
Will traditional banks also enter the digital asset business?
Yes, because the market entry of the new crypto banks opens many new opportunities to connect crypto currencies and other digital assets for all customer segments with traditional banking products. It is generally expected that further crypto- bank projects will be launched. In addition, there will likely to be a variety of collaborations between traditional banks and crypto banks. Traditional banks will join the new digital ecosystem and contribute to the further development of digital services.
By granting the first licenses for blockchain financial service providers, FINMA has clearly signaled its commitment to approve - subject to clear conditions - crypto-based business models, and to recognise digital business models as the new future in the financial industry.