Digitisation is one of the most important drivers of innovation and of crucial importance for the competitiveness of the Swiss economy. One of the most promising developments is Distributed Ledger Technology (DLT).
In March 2019, the Federal Council initiated the consultation on the adaptation of the Federal law to the developments of the DLT and submitted a preliminary legislative proposal for a new federal law amending federal laws in the light of the developments regarding the DLT ("draft consultation") as well as an explanatory report.
As part of the consultation procedure, the Federal Department of Finance was appointed to continue the public deliberations and to invite all cantons, political parties and national organisations of legal persons under public law, business associations and other interested parties to submit their comments by 28 June 2019. As an independent law firm with a broad and long-standing experience in providing legal advice on blockchain projects, we are happy to comment on the proposed amendments to the law.
The most important points can be summarised as follows:
- The introduction of the proposed uncertificated DLT securities ("DLT-Wertrechte") is to be welcomed and is able to significantly increase the legal certainty in the tokenization of rights, especially with regard to the still obstructive written form requirement during transmission. Conceptually, however, it is to be regretted that the consultation draft only covers rights-bearing tokens under private law and, with the exception of bankruptcy segregation, does not provide a legal framework for the large number of payment and utility tokens without counterparties (so-called native tokens). This is a missed opportunity to find a holistic solution.
- Although the consultation draft contains many important and useful provisions, it does not yet appear to be fully developed and should be adapted on a number of points. With regard to the content of the uncertificated DLT securities, it shall be specified in particular to what extent the uncertificated DLT securities have a character of a certificated security with a corresponding physical nature. Although there are a number of places where the direct or indirect reference to "power of disposal" is justified, such an approach is lacking in the present proposal. Analogous to the TVTG in Liechtenstein, the specification of "power of disposition" and " entitlement to dispose" would have to be examined. A purely registration-based approach such as that used for intermediated securities is unable to adequately capture the desired certificated securities characteristics of tokens.
- Further, we propose that the principle of functional equivalence, which is also recognised in Switzerland, be enshrined in positive law as a basic principle. The concept of functional equivalence is based on the assumption that in cases where Swiss law links the validity of legal transactions or the existence of a legal institution to substantive or formal prerequisites, these prerequisites shall be deemed to have been fulfilled if a digital system can functionally replace the underlying legal protection concerns in an equivalent manner. Thus, the legislator can focus on regulating those issues that are not covered by this principle.
- The planned statutory segregation of tokens and data in bankruptcy is useful. However, the possibility of segregation should be extended to cover all types of cryptobased assets (and not only "cryptobased means of payment and uncertificated DLT securities") and also forms of collective custody, which are widely used in practice. Admassification should also be provided for by law as a counterpart to segregation. This is all the more the case as the admassation action, in contrast to the segregation action, represents a vindication.
- We welcome the planned introduction of a new financial market infrastructure category. We are very positive about the fact that the DLT trading system breaks up the traditional value chain "Trading - Clearing - Settlement" and thus optimally meets the needs of Blockchain/DLT. The new category enables both trading and post-trading under one licence. Due to the positive momentum with regard to the current attractiveness of the location for the establishment of blockchain/DLT projects in Switzerland, we would welcome a rapid implementation.
We consider the introduction of the new regulations to be time-critical. In the rapid (global) digital development, a rapid decree for the global positioning of digital Switzerland is match decisive. However, sufficient legal certainty is already needed today. With a technology-friendly interpretation of the transfer of rights via a DLT infrastructure - for example via the concept of functional equivalence - this "gap" could be closed until the introduction of the new regulations.
Please download the full position paper (in German) here (PDF, 194 Kb).