Crypto banks jig to the regulator's tune

The dance is familiar but the tune is somewhat different: the Swiss regulator is battling hard to keep up with the dynamic changes being brought about by new technology. © Keystone / Gaetan Bally

Our regular analysis of developments in the world of fintech and Crypto Nation.

This content was published on August 30, 2019 - 20:56

The wait and anticipation are over - Switzerland finally has two newly-minted crypto banks: Sygnum and SEBAExternal link. Bitcoin SuisseExternal link is also hoping for a regulatory nod of approval towards its own banking license request.

The “will they, won’t they” Sygnum/SEBA saga also reveals a bit about the mechanics of the Swiss Financial Market Supervisory Authority (FINMA).

I’m told FINMA makes its final licensing decisions by gathering around a boardroom table in Bern on a Friday. If the decision is “yes”, the lucky bank/broker/exchange then has to agree with the regulator on the exact wording of its press release, which is posted on the following Monday morning.

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Twice in the last few weeks (once in July and once in mid-August) my contacts dashboard was lighting up with signals of an imminent announcement. Both turned out to be false alarms until the banks struck “third time lucky” this week. But was this a case of FINMA twice changing its mind at the last minute?

I’m not the only journalist who was told this was the case. We can only speculate why. Perhaps it was due to difficulties coordinating the license awards for both banks simultaneously, so as not to give one an unfair competitive advantage. Maybe the late bid of Bitcoin Suisse threw a spanner into the works. One conspiracy theory has it that FINMA got cold feet in light of the global regulatory backlash against the Geneva-based Facebook Libra projectExternal link. business correspondent Matthew Allen takes a deep dive into the impact of emerging financial technology.

The wording of FINMA’s announcement on August 26External link certainly suggests the regulator was mindful of the risks of rubber-stamping the world’s first crypto banksExternal link. The names SEBA and Sygnum don’t appear until the final paragraph, buried under a forthright message that “blockchain-based business models cannot be allowed to circumvent the existing regulatory framework…particularly to the rules for combating money laundering and terrorist financing”.

However, FINMA's apparent "Swiss Finish" to international regulations appears at first glance to make it more cumbersome to conduct crypto transactions in Switzerland.

Also on my radar:

Back to that Libra project. Members of the US Congress recently visited Switzerland to voice their concerns about the cryptocurrency to Swiss officials. Congresswoman Maxine Waters returned home saying her “concerns remained”. But this hasn’t stopped Libra from announcing a bug bounty programmeExternal link, challenging hackers to find bugs in its code.

The digitalisation of Swiss banks is proceeding at a few ticks faster than snail’s paceExternal link, says the Swiss National Bank. The entry of new fintech players in the market has been “relatively modest” it says in a report this week. I’ll be at the Swiss Fintech FairExternal link on September 17 to find out what’s going on.

One fintech that has certainly been no slouch is NumbrsExternal link, the Zurich-based mobile banking platform that has reached the Unicorn status of $1 billion valuationExternal link, having recently boosted its venture capital pot to $200 million.

Follow me on Twitter @matthewallen40External link

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