Swiss regulators are currently making a greater effort to provide clear regulations for the banking industry to ensure that cryptocurrency-related projects can remain fully functional within the country. The decision comes in response to a recent trend in which cryptocurrency startups have begun migrating out of the country after two major banks started refusing them business.
If Swiss banks continue their strict stance on cryptocurrency businesses, Switzerland will most likely lose business to offshore rivals.
Cryptocurrency Startups Will Leave Switzerland if Banking Situation Does Not Improve
According to Reuters, Switzerland is currently losing business to their neighboring nations—including Gibraltar, Lichtenstein, and Cayman Islands—that have more crypto-friendly banks. Although the cryptocurrency industry is currently small in comparison to the traditional finance and banking sector, it’s growing at an extremely fast rate. According to local officials, Switzerland’s cryptocurrency community currently employs hundreds of people.
Despite the growth of the cryptocurrency community and emergence of “Crypto Valley,” a town located at the Swiss Canton of Zug that is home to approximately 200-300 cryptocurrency-related businesses, Switzerland’s tough banking laws pose a large threat to the community.
Heinz Taennler, Zug’s finance director mentioned that these cryptocurrency-related startups may choose to leave the country if they have inadequate access to the banking system. Without a proper bank account, these businesses will cease to survive.
“All their banking relationships are going to Lichtenstein,” said Taennler to Reuters. “These are hundreds of jobs that have been created, and every job is important.”
Thomas Moser, a member of the governing board at the Swiss National Bank (SNB), mentioned that some cryptocurrency startups had even requested for the Central Bank to intervene with the situation.
“They raised concerns about problems with opening bank accounts which was a worry for them and asked for help,” said Moser to Reuters. “I said this was not something the SNB dealt with, but they should speak with FINMA.”
FINMA, the Swiss Financial Market Supervisory Authority, has spoken to SNB and the banking association to discuss the different approaches necessary to ensure that cryptocurrency startups are not hindered by the existing rules from the banking industry.
“We would not want to close the door on the opportunities that such innovation (cryptocurrencies) might bring,” said Moser.
Banks Seek Assurance From the Government
While FINMA is taking active steps to remedy the situation, Swiss banks are also looking to the government for greater clarity when it comes to working with cryptocurrency-related businesses.
Unfortunately two banks in Switzerland are no longer working with cryptocurrency-related businesses. One of the banks is the Zuercher Kantonalbank (ZKB), the fourth largest Bank in Switzerland. An industry source mentioned to Reuters that late last year in 2017, the ZKB closed down over 20 cryptocurrency-related company bank accounts.
There is the fear among Swiss banks that some companies that launched ICOs did not undergo correct anti-money laundering (AML) checks on every donator. If banks were to work with these cryptocurrency companies, they would therefore be in violation of their AML rules.
While the solution is to create a clearer legal framework and rules for cryptocurrency businesses and ICOs, creating new systems is fairly difficult. However, Switzerland is taking this challenge head-on. They are currently assessing new rules and developing a new framework to encourage banks to work with cryptocurrency-related projects.
The government’s decision to improve the relationship between the banking and cryptocurrency community may be motivated by the country’s falling rankings in the cryptocurrency market. According to a study by PwC and Crypto Valley Association, in regards to the sum of ICO funds raised, Switzerland has fallen from second place in 2017 to sixth place in 2018.
The ongoing problem has also prompted a meeting between Swiss Finance Minister Ueli Maurer, FINMA, the Central Bank, the Swiss Bankers Association (SBA). After the meeting, the SBA had also set up a checklist of conditions for every bank to follow, especially when it came down to the opening up of bank accounts for cryptocurrency-related projects.
“Banks are currently hesitant to open business accounts for companies with particular touchpoints to ICOs and cryptocurrencies – due to risks such as fraud or money laundering,” said the SBA.
Switzerland’s regulators are therefore looking for different ways to ensure that they remain competitive without cases of scam or fraud slipping through. The finance minister is also assessing broad laws that concern blockchain technology and ICOs.
Lichtenstein Grows as Swiss Banks Practice Caution
Although the Swiss Bank’s cautionary response has driven away many cryptocurrency-related projects, the loss for Switzerland has become a large opportunity for their neighboring nation, Lichtenstein.
David Henderson, the founder of Swiss Sweetbridge Foundation mentioned that due to the banks’ actions, many cryptocurrency-related projects that were operating in Switzerland are currently on pause or have closed down. Henderson mentioned that, since it’s hard for cryptocurrency projects to use the funds they gain from an ICO if they cannot access their bank account, many companies have flocked to Lichtenstein and Gilbraltar instead.
“I cannot pay salaries because our money is caught up there,” said Henderson. “We cannot move it.”
There are however, two remaining Swiss banks who are open to working with cryptocurrency-related startups and will accept funds from ICOs.
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