“We are operationally ready to offer institutional clients bank accounts and payment services in cryptocurrencies, just like Swiss franc accounts.” Gazprombank Switzerland is one of a number of banks hoping that the Swiss regulator will give the green light next year.
This content was published on November 20, 2020 – 15:58
Gazprombank’s Swiss unit was recently given regulatory approval to store and trade cryptocurrencies on behalf of clients. They join a growing list of such banks in Switzerland. But buying stocks and bonds (or anything else) with bitcoin remains a taboo subject in the traditional banking sector – for now.
Edouard Hurstel, Head of Crypto & Blockchain Services at Gazprombank Switzerland (quoted above), thinks regulatory approval is only months away. The key breakthrough has been finding a way to make bitcoin banking payments compliant with anti-money laundering rules.
Banks don’t just transfer money for their clients – they also pass on information on their identity and the source of funds. This is to comply with a global anti-money laundering regulation known as the “Travel Rule” and it is performed via the SWIFT interbank messaging system. The trouble is that cryptocurrencies are created, stored, transacted and audited differently from dollars and francs. The answer is to build an alternative to SWIFT.
Several systems are now available around the world, including the Swiss decentralised and open source protocol known as OpenVASP. (Regulators have dubbed entities that store, trade or manage cryptocurrencies for clients as “Virtual Asset Service Providers” or VASPs.)
OpenVASP has been tested and declared functional using a system built by Swiss software developers 21 Analytics. In August, the financial services firms Mt Pelerin and Crypto Finance claimed to have conducted the first Travel Rule compliant bitcoin transaction. This was followed by another successful test transaction between Gazprombank Switzerland and Bitcoin Suisse.
Dukascopy Bank has become a member of a different Travel Rule solution, Sygna Bridge, developed by Taiwanese company CoolBitX. The bank, which has issued its own Dukascoin digital payment token, said it is open to further collaborations, but for now, Sygna Bridge offers a solid answer to the Travel Rule plus exposure to the “strategically important” Asian market.
“The technology is so new that it remains unclear which designs and protocols will become more popular in the future,” Dukascopy CEO Andre Duka told me. “Digital assets are still a very new type of instrument. They will need years or even decades to prove their role and claim their place in the industry. From the banking industry’s perspective, everything is in the hands of regulators.”
True to form, the Swiss financial regulator FINMA has applied the Travel Rule more stringently than the international norm. Sending client data will be applied for transactions above CHF1,000 rather than CHF5,000 for other assets, because of the “heightened money-laundering risks in this area”.
This makes a mockery of FINMA’s proclamation of being “technology neutral”, says Roger Darin, spokesman for the Bitcoin Association Switzerland. “Since bitcoin is recognised as a store of value, it’s hardly surprising that it attracts institutional investors,” he said. “This will inevitably attract the attention of regulators. But regulation has to be fair and proportional.”
Proportional or not, regulators and lawmakers in Switzerland are not blind to the potential enhancements digital assets could bring to the financial centre. And Edouard Hurstel thinks that the Swiss “laboratory” can drive forward the integration of blockchain and traditional finance.
“Switzerland is currently probably the only country in the world that can integrate cryptocurrency payments in a fully regulated, trustworthy way,” he says. The ball is in FINMA’s court.