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Swiss Regulator Releases AML, KYC Guidance for Blockchain Payments

Switzerland’s Financial Market Supervisory Authority (FINMA) has released guidance on regulatory requirements for payments on the blockchain under FINMA supervision.

The new guidance for virtual asset service providers, published on Aug. 26, applies to blockchain service providers including exchanges, wallet providers and trading platforms.

In its preface to the guidance, FINMA notes its adherence to the framework for digital asset regulation issued this June by the intergovernmental Financial Action Task Force (FATF). 

More stringent than the FATF

FINMA underscores that blockchain sector businesses cannot be exempted from the country’s existing regulatory standards, such as the Anti Money Laundering (AML) Act. This is all the more critical given what the watchdog perceives to be the intensification of risks such as money laundering and terrorist activity financing when it comes to pseudonymous blockchain mechanisms.

Blockchain service providers are thus required to conduct Know Your Customer checks, follow a risk-based approach to monitoring their business relationships and notify the Money Laundering Reporting Office Switzerland should they identify suspicious activity on their platforms. 

The regulator emphasizes that its provisions should be interpreted in a technology-neutral way: therefore, requirements that that information about clients and beneficiaries is transmitted with payment orders applies to blockchain payments in the same way as for bank transfers. 

Such information, however, need not be transmitted on the blockchain but can be provided using other communication channels.

FINMA notes that it departs from the FATF guidance in refusing to exempt payments involving unregulated wallet providers from its requirements. 

Excessive demands?

FINMA notes that there is currently no system — national or international — that can reliably transmit identification data for blockchain-based payments. Neither have bilateral agreements between individual service providers been established thus far, it adds. 

Should any such agreements or data sharing mechanisms be established in future, it states, they would be required to exclusively involve service providers that are subject to appropriate AML supervision.

Also announced today, social media sources have claimed that FINMA has approved banking licenses for two blockchain service providers, Sygnum and Seba.

This spring, blockchain analysis firm Chainalysis had urged the FATF to rethink its guidance and reporting demands for VASPA, arguing that forcing onerous requirements onto “regulated VASPs, who are critical allies to law enforcement, could reduce their prevalence, drive activity to decentralized and peer-to-peer exchanges, and lead to further de-risking by financial institutions.”

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