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While there is a universal positive attitude towards the crypto industry in Switzerland, Finma, as the regulator of the Swiss financial markets, has been developing a very paradoxical approach. In public, it claims technological neutrality and says it welcomes innovation. In practice, Finma constantly changes the rules, creating uncertainty and limiting the ability of the industry to deliver what are perfectly legal services. Finma does so by introducing restrictions that change the nature of the law itself. This is not what is expected from an institution that has no legislative powers. When all the pieces are put together, the picture looks very grim for our democratic processes. Thus, we are now forced to fight Finma in court.
One of the many changes Finma introduced is a restriction on cryptocurrency exchanges, with the aim of combatting money laundering on a large scale. The law allows transactions of up to 5,000 Swiss francs to be completed without identification. Finma had already reduced this amount to 1,000 francs for Bitcoin exchanges just by following a request by the Financial Action Task Force (FATF) in a botched consultation process. Now, Finma wants to further lower the limit to 1,000 francs over a period of 30 days. This is economically and technically non-viable. The message from Finma is clear: It does not want cryptocurrency transactions to happen without identification – although the law allows it.
Finma refuses to take responsibility
Here is the catch: Finma, after trying to impose this change by a simple email to the self-regulatory organisations, changed its own ordinance to impose this new rule. In the accompanying report, it specifically targets Bitcoin vending machines. But the Finma ordinance is inadequate to authorize such a change. The ordinance only applies to a limited number of financial institutions – currency exchanges are not one of them. Finma, however, created a soft power environment that pushes self-regulatory organisations who provide oversight to currency exchange businesses to adjust their own rules to accord with Finma’s wishes. This calls into question the legality of Finma’s actions.
Our company, Bity, operates Bitcoin vending machines and is a clear target of this new rule. So we simply asked Finma: Does the Finma ordinance apply to Bity? Finma answered that it was not competent to answer this query. How can an institution, in a democracy under the rule of law, create a rule and then claim that it is not competent to say whether or not something is affected by this very rule? We submitted a case of denial of justice to the Federal Administrative Tribunal to get a clear answer.
Innovation is threatened
But our case goes much deeper. Finma is a regulatory body that was put in place to provide oversight over an industry that was working with traditional technologies. Crypto-currencies bring a fundamental shift in infrastructure with their openness and peer-to-peer characteristics. Instead of rethinking its role, Finma forces this new industry to adopt rules that aim to reduce the usage of its open infrastructure. And because Finma feels so threatened by this new industry, it bypasses all standard administrative and democratic processes. Without any impact assessment, any reports, nor taking into account contributions to consultation processes, it pushes new rules based on impressions from newspapers like «Blick». Since when does Finma create rules based on simplistic news articles?
Sadly, Finma can hide from public oversight because it has no transparency obligations. This leaves the authority without any checks and balances. But this is now hurting the financial industry’s ability to deliver innovative services. Finma must therefore be reformed. And the first thing we should do is to subject it to the Transparency Act. Finma must become a transparent administration like all the others.