Swiss financial regulator to keep threshold for KYC on digital asset transactions

Getting your Trinity Audio player ready...

The Swiss Financial Market Supervisory Authority, or FINMA, announced on Wednesday the conclusion of its consultation on proposed updates to its Anti-Money Laundering Ordinance. The proposed updates place heightened Know Your Customer (KYC) obligations on financial intermediaries, such as wallet providers and trading platforms. The revised ordinance will now come into force on January 1, 2023.

The changes flow down from amendments made to the Anti-Money Laundering Act (AMLA) and the Federal Council’s Anti-Money Laundering Ordinance in 2021.

Under those amendments, financial intermediaries such as wallet providers and trading platforms must verify the identity of the beneficial owner of assets. Intermediaries must also periodically reverify and update client data. The circumstances in which intermediaries must also report activity to the regulator have also been redefined to include cases where the mediator has a concrete indication that particular assets are connected with a criminal offense, qualified tax offense, are subject to the power of disposition of a criminal or terrorist organization or serves the financing of terrorism.

FINMA’s consultation also covered a revised threshold for KYC on digital asset transactions, which came into force in 2020 and was reduced from CHF5,000 ($4,953) to CHF1,000 ($991) within a 30-day period. Financial intermediaries must complete KYC checks on the transactor when the threshold is exceeded. The reduction was notable because it created a gap between standards for digital assets and non-digital asset transactions, the latter of which remained at CHF5,000 ($4,953).

In other words, the KYC requirements would apply to anybody purchasing more than CHF1,000 ($991) worth of digital assets within 30 days.

The changes were made as part of FINMA’s implementation of the Travel Rule, an important anti-money laundering/combating the financing of terrorism measure recommended by the Financial Action Task Force. The rule mandates that service providers—such as exchanges—exchange and hold information about the originators and beneficiaries of digital asset transfers.

According to Wednesday’s announcement, FINMA received ‘numerous responses’ on this point. However, “in view of the risks and recent instances of abuse, FINMA stands by the rule that technical measures are needed to prevent the threshold of CHF1,000 ($991) from being exceeded for linked transactions within thirty days.”

In other words, FINMA isn’t budging on the lower threshold for digital asset transactions.

Switzerland has been more active than most in modernizing the country’s legal regimes to account for digital asset technology. Under the umbrella of the DLT bill, a host of new amendments were passed into law in late 2020, adapting existing regulations to cater to digital assets, such as the segregation of deposited digital assets in the event of the bankruptcy of a custodian. It also provided for the electronic registration of tokenized securities rights, allowing the possibility of ledger-based securities to be transferred on-chain.

All that’s left is for the revised ordinance to come into force on January 1, 2023.

Watch: The BSV Global Blockchain Convention panel, Law & Order: Regulatory Compliance for Blockchain & Digital Assets