Swiss FINMA warns blockchain-based business models should not circumvent existing rules

Maria Nikolova

The Swiss regulator publishes guidance on regulatory requirements for payments on the blockchain for financial services providers under FINMA supervision.

Switzerland’s Financial Market Supervisory Authority (FINMA) has earlier today published guidance about the application of regulatory requirements for payments on the blockchain for financial services providers under FINMA supervision. The guidance on virtual asset service providers (VASPs) concerns blockchain service providers such as exchanges, wallet providers and trading platforms. It requires that the existing rules on combating money laundering also apply to such service providers.

FINMA notes that blockchain-based business models cannot be allowed to circumvent the existing regulatory framework. This applies particularly to the rules for combating money laundering and terrorist financing, where the inherent anonymity of the blockchain presents increased risks. For this reason, Switzerland has always applied the Anti-Money Laundering Act to blockchain service providers.

Such providers are obliged, for instance, to verify the identity of their customers, to establish the identity of the beneficial owner, to take a risk-based approach to monitoring business relationships and to file a report with the Money Laundering Reporting Office Switzerland (MROS) if there are reasonable grounds to suspect money laundering.

Article 10 AMLO-FINMA requires that information about the client and the beneficiary be transmitted with payment orders. The financial intermediary receiving this information then has the opportunity to check the name of the sender against sanction lists. It can also check whether the information for the beneficiary is correct or whether it should return the payment in the event of discrepancies.

The provision must be interpreted in a technology-neutral way, FINMA says, and therefore also applies to services based on blockchain technology. It is not necessary for the information to be transmitted on the blockchain. Transmission can take place via other communication channels. The purpose of the provision is particularly relevant to the blockchain. The FATF also expects information about the client and the beneficiary to be transmitted with token transfers in the same way as for bank transfers.

No system currently exists at either a national or an international level for reliably transferring identification data for payment transactions on the blockchain, FINMA explains. Neither are bilateral agreements between individual service providers in existence to date. For such systems or such agreements to meet the requirements of Article 10 AMLO-FINMA in future, they would have to involve only service providers who are subject to appropriate anti-money laundering supervision.

Unlike the FATF standards, Article 10 AMLO-FINMA does not provide for any exception for payments involving unregulated wallet providers. Such an exception would favour unsupervised service providers and would result in supervised providers not being able to prevent problematic payments from being executed.

As long as an institution supervised by FINMA is not able to send and receive the information required in payment transactions, such transactions are only permitted from and to external wallets if these belong to one of the institution’s own customers. Their ownership of the external wallet must be proven using suitable technical means. Transactions between customers of the same institution are allowed. A transfer from or to an external wallet belonging to a third party is only allowed if, as for a client relationship, the supervised institution has first verified the identity of the third party, established the identity of the beneficial owner and proven the third party’s ownership of the external wallet using suitable technical means.

If the customer is conducting an exchange (fiat-to-virtual currency, virtual-to fiat currency, or virtual-to-virtual currency) and an external wallet is involved in the transaction, the customer’s ownership of the external wallet must also be proven using suitable technical means. If such proof is not available, the rules for payment transactions apply.

Read this next

Digital Assets

FTX co-CEO, SBF’s close associate sentenced to 90 months in prison

Former FTX executive Ryan Salame has been sentenced to 90 months in prison after pleading guilty to criminal charges last September.

blockdag

BlockDAG Dominates Crypto Presales With $34.7M Milestone, Surpassing Floki And Bonk In Market Influence

Discover how BlockDAG’s cutting-edge dashboard and presale achievements upstage Floki and Bonk in the cryptocurrency arena, signaling superior investment opportunities.

Market News, Tech and Fundamental, Technical Analysis

Dogecoin Technical Analysis Report 28 May, 2024

Dogecoin cryptocurrency can be expected to fall further toward the next support level 0.1500.

Retail FX

Canadian broker Questrade taps TradingView charting

Canadian securities brokerage Questrade has upgraded its web platform by integrating popular charting software TradingView.

Fintech

Germany lifts N26’s monthly cap of 60,000 new clients

Germany’s financial regulator has lifted a cap on the number of new clients that N26 Bank AG can take on after the fintech company improved its anti-money laundering controls. BaFin, the country’s financial watchdog, will remove the cap entirely from June 1, 2024.

Education

Animals and the money: Octa broker gathered the most popular slang words in financial markets

If you’ve seen ‘The Wolf of Wall Street’ with Leonardo DiCaprio as Jordan Belfort, you might have wondered why he’s called a wolf in the movie. It’s not just a random label. Animals are often used in finance to describe traders, their traits, or market conditions.

Industry News

Octa’s Global Ramadan Impact

Charity activities are an essential part of Ramadan celebrations. Octa seized this opportunity to implement a series of socially beneficial initiatives worldwide. Read about the projects the broker carried out in Indonesia, Malaysia, and Nigeria.

Digital Assets

Nexo integrates The Tie’s advanced real-time analytics

“Learning to analyze and “hear” the market takes time, but it also takes information. Together with the Tie, we are acting on our commitment to ensure all users have fast access to market sentiment and movements, enhancing their experience, strategies, knowledge, and engagement through valuable data-driven insights.”

Executive Moves

The Financial Commission appoints FastMT’s Aytugan Khafizov to committee

“We are thrilled to have Mr. Khafizov join our dispute resolution committee. His deep expertise in financial trading systems and his commitment to improving trading technologies will significantly strengthen our efforts in providing fair and efficient resolutions for our members’ clients.”

<