The Swiss Bankers Association (SBVg) has guidelines in place on how their members should deal with blockchain clients. The main distinction is between businesses that raise funds via ICOs and those that don’t.
Despite the government’s blockchain-friendly approach, crypto-banking is still painful in Switzerland. Banks shy away from dealing with blockchain businesses, as they don’t want to take compliance risks associated with Anti-Money-Laundering (AML) or Know-Your-Customer (KYC) regulations.
Heinz Taennler, Finance Director in Zug, said businesses are leaving the Crypto Valley and migrate to Liechtenstein. “All their banking relationships are going to Liechtenstein. These are hundreds of jobs that have been created, and every job is important,” he says.
Banks have policies in place when it comes to blockchain banking. In late 2018, the Swiss Bankers Association (SBVg), the umbrella organization of Swiss banks, has published guidelines for their members on how to deal with blockchain clients.
The SBVg’s working group issued guidelines for Swiss banks in 2018
The SBVg’s guidelines brochure released in September 2018 starts by stating how happy Swiss banks are about the many blockchain businesses setting up shop in Switzerland. Swiss banks “consider blockchain technology has a chance, offering a wide range of opportunities to the financial marketplace in Switzerland.” Thus, the SBVg wants to contribute to the build-up of a blockchain ecosystem.
As blockchain businesses need access to the full range of corporate banking services – and first and foremost business accounts – banks face a variety of challenges revolving around AML and KYC regulations. Thus, banks have to conduct solid due diligence before allowing blockchain clients to open bank accounts.
To provide guidance for its banking members, the SBVg launched a working group in 2018, consisting of its member banks, government officials and representatives of the Crypto Valley Organization. The result of this working group were guidelines on blockchain banking.
Restrictions only needed for businesses that raise funds in cryptocurrencies
According to these guidelines, the SBVg suggests banks to distinguish businesses that raise funds via an ICO and those that don’t.
Businesses that do not undertake an ICO should get the same treatment as any other corporate client. Thus, if a company develops a blockchain-based product, even if it is in the financial industry, it shall not be subject to any additional requirements than any other business.
Blockchain businesses that are undertaking an ICO, however, have to comply with additional requirements. But only if they raise funds in the form of digital currencies, not if they raise funds in form of fiat currencies.
Hence, the problem is not with blockchain technology itself. Cryptocurrencies are what creates headache among bankers. The SBVg’s guidelines suggest banks should apply all relevant KYC and AML regulations, meaning businesses need to prove who is providing crypto funds and where these funds came from.
The SBVg guidelines state what information banks should obtain pre-ICO, during the ICO and post-ICO and what minimum criteria banks should apply. The full guidelines are available for download here.
As blockchain businesses are unattractive for big banks, smaller players fill the gap
The crypto community likes to engage in conspiracy theories, so we like to say things like, “banks don’t want us to open bank accounts, because they fear the crypto competition.”
The reality is, banks take whatever business they can get – if it’s profitable. However, both the compliance risk as well as the additional hassle and paperwork makes it unattractive for major banks to do deal with blockchain businesses. It’s simply not worth it.
Can we blame the banks? The underlying problem is that regulations are complex and not clear. But it’s also not as if banks are making a major effort to service blockchain clients. That’s why especially smaller banks are now trying to fill the gap as they see the chance to tap into a market that remains untouched by their large counterparts.