Three crypto industry organizations in Switzerland, namely the Swiss Blockchain Federation, the Crypto Valley Association, and the Bitcoin Association Switzerland, have joined forces to release a comprehensive manifesto aimed at reinforcing Switzerland’s position as a global blockchain hub.

The report, released on May 06, presents a 12-point action plan addressing the strengths and weaknesses of the Swiss financial center. It provides actionable recommendations for policymakers, regulators, and industry leaders, with the overarching goal of ensuring that Switzerland remains at the forefront of the technology.

While the report acknowledges that Switzerland stands as one of the most innovative countries in the world, boasting a robust legal and regulatory framework and a generally supportive stance towards innovation, it warns of the lack of continuous progress and proactive policy implementation.

At the time same time, other jurisdictions, particularly in Asia and the Middle East, but also the European Union (EU) through its Markets in Crypto Assets Regulation (MiCAR), continue to make strides, improving their regulatory landscape and accelerating technological advancements.

To close this gap, the report outlines 12 targeted areas for reform. These initiatives encompass regulation, funding and tech adoption, and are design to position Switzerland for long-term leadership in fintech.

Strengthening innovation-friendly framework conditions

The report advises for the Swiss Federal Council’s Digital Finance Report to be translated into concrete actions, criticizing the Swiss Financial Market Supervisory Authority (FINMA) for not prioritizing innovation as a strategic objective despite its legal mandate to enhance the competitiveness and future viability of the Swiss financial center.

To address this, it calls for the Federal Council to mandate FINMA to formulate concrete strategic implementation initiatives with measurable objectives and to provide regular progress reports. Furthermore, structures that promote innovation, such as the Swiss Financial Innovation Desk (FIND), should be strengthened and better supported.

Technology-neutral and proportionate regulations

The manifesto emphasizes the need for a regulatory framework that’s technology-neutral and proportionate. It stresses that any regulatory measure must be empirically justified, risk-based, and tailored to the specific services involved.

This approach ensures that regulatory proposals are effectively contributing to maintaining and strengthening Switzerland‘s competitiveness as a business location.

Introducing deadlines for licensing procedures

The report advises for the introduction of binding deadlines for authorization procedures at FINMA, and calls for the implementation of statutory timelines. It states that authorizations should be completed within six months of receiving a complete application, and stresses that if all legal requirements are met, a license must be granted.

Currently, licensing processes at FINMA take far too long, and in some case, they can drag on for several years, the report says. Furthermore, the status and duration of the process are not made transparent. These are significant inefficiencies in the current system, it stresses.

The need for digital money

The report supports all initiatives for the digitalization of payment methods and consider it essential to supplement the payment infrastructure with stable Swiss franc stablecoins. It calls for the removal of the regulatory obstacles that currently make the issuance of stablecoins in Switzerland so onerous.

The organizations welcome ongoing efforts by the State Secretariat for International Finance (SIF), the Swiss banking sector, and the Swiss National Bank (SNB) on stablecoin regulation, tokenization advancements, and wholesale central bank digital currency (wCBDC) initiatives.

Promoting regtech

The report highlights the need to promote regtech and accelerate the use of innovative technologies to improve compliance processes. It calls for the legal foundations for regtech innovation to be established, while encouraging industry stakeholders to develop best practices and collaborate on research projects.

The cost of financial crime compliance has steadily increased over the years, with the annual cost in Europe, the Middle East and Africa (EMEA) reaching US$85 billion in 2023, according to LexisNexi Risk Solutions.

Regtech can address rising compliance costs by automating regulatory processes, improving accuracy, and reducing the time and resources needed for compliance.

Strengthening self-regulation

The report advocates for maintaining and strengthening self-regulation within Switzerland’s financial sector, emphasizing that self-regulatory organizations (SROs) are more agile and closer to market participants than direct supervision by FINMA. It argues that the project for a crypto SRO, in particular, should be pursued with high priority.

It warns, however, that FINMA’s increasing imposition of binding requirements is undermining the autonomy and effectiveness of self-regulation.

Improving transparency in supervisory practices

The report supports FINMA‘s intention to further strengthen transparency in its supervisory practices, especially through semi-annual fintech roundtables. It calls for the industry and associations to effectively exercise their legally guaranteed consultation rights.

It also suggests that industry associations can contribute by establishing structured monitoring systems or a joint clearing center to track and interpret regulatory developments.

Lowering barriers to investment

Despite Switzerland’s openness to cross-border services, investments by foreign financial service providers in the country repeatedly face technical obstacles. These obstacles include overly strict interpretations of consolidated supervision by FINMA and intrusive audits of qualified participants exceeding legal necessities.

This creates uncertainty for investors and weakens the international dimension of the Swiss financial centre.

The report calls for greater efforts by stakeholders to remove these obstacles.

Clearer regulation

The report calls for more precise and use-case-tested regulation in Switzerland’s financials sector to prevent excessive interpretive discretion by FINMA. It calls for a structured dialogue among authorities, supervisors, industry, and associations to clarify ambiguous rules and ensure new regulations are tested against real-world scenarios before implementation.

Draft regulations must also be subject to quality control, which should systematically be checked against the relevant use cases in order to test whether it yields the intended results.

A focus on Swiss interests

The report notes that while international standards are important, their adoption in Switzerland must be guided by Swiss interests and must involve Parliamentary oversight. It cautious against blindly implementing standards shaped by the political or economic agendas of larger countries, noting that such standards may not align with Switzerland’s strategic goals.

Switzerland‘s involvement in international standards should therefore be closely monitored politically early on, and standard adoption should be a structured, transparent and open-ended process.

Developing industry standards

In Switzerland, slow adoption of new technologies is not only due to regulation but also to industry shortcomings, such as a lack of initiative, technical readiness, and operational standards.

To address this, associations and stakeholders should develop standards, especially in the area of recording financial instruments and crypto assets, an area where Switzerland is already strong but underutilized.

Strengthening financing for startups and small businesses

Despite an active venture capital (VC) market, the financing of startups and small and medium-sized enterprises (SMEs) in the growth phase is difficult in Switzerland and the broader European continent.

The report recommends the Federal Council to commission Innosuisse with a special funding mandate and calls for continued reform to remove taxation hurdles, including those related to withholding tax, issuance and turnover taxes, and income tax treatment of business angels and corporate restructuring.

Featured image: Edited by Fintech News Switzerland, based on image by mangpor2004 via Freepik