VASP Services under SRO Regulations in Switzerland

A Comprehensive Guide

Switzerland has become a global center for finance and technology by continuously leading the way in financial innovation and regulatory frameworks. Switzerland, which prides itself on having a secure and sound banking system and is viewed as a politically neutral state with a reliable financial industry regulator, has drawn substantial wealth. This reputation also extends to the world of digital assets, where Switzerland was one of the first countries to publish guidelines on the Travel Rule’s application to Virtual Asset Service Providers (VASPs), bringing digital assets into compliance with the internationally acknowledged Financial Action Task Force (FATF) standards for Anti-Money Laundering (AML).​

A significant step toward integrating cryptocurrencies inside a robust regulatory framework was taken in August 2019 when the Swiss Financial Market Supervisory Authority (FINMA) introduced the VASP regime. This action created a safe and transparent environment for activities linked to virtual assets and ensured compliance with AML regulations.

Article 2 of the Swiss Anti Money Laundering Act (AMLA) defines the Travel Rule, which applies to organizations and actions that are described in accordance with FINMA circulars and guidance articles. If virtual Asset service Providers (VASPs) satisfy the requirements outlined in Article 7 of the Anti Money Laundering Ordinance (AMLO). These criteria include achieving gross revenue exceeding CHF 50,000 per calendar year, establishing business relationships with more than 20 contractual parties annually, having control of third-party funds exceeding CHF 5 million, or conducting transactions exceeding CHF 2 million per year. According to FINMA Guidance 02/2019, self-hosted wallets are covered by the Swiss Travel Rule, which prohibits unsupervised service providers from enabling problematic payments.

Furthermore, the function of Switzerland’s Self-Regulatory Organizations (SROs) highlights the nation’s dedication to preserving the integrity of its financial institutions. SROs are critical in preventing money laundering and terrorist financing concerns by defining due diligence standards under the AMLA and overseeing compliance among financial intermediaries.​

What is the SRO license in Switzerland?

A self-regulatory organization (SRO) license in Switzerland enables VASPs to conduct business and offer various services within the legal framework established by the FINMA. In addition to other associated services in the cryptocurrency space, the services include acting as brokers and exchanges for transactions involving both fiat and cryptocurrency to cryptocurrency.

In Switzerland, there are 11 SROs recognized by FINMA and acting as the controlling body for financial intermediaries. Among the recognized SROs, the ones particularly relevant for VASPs are:

VQF Verein zur Qualitätssicherung von Finanzdienstleistungen (Financial Services Standards Association)

VQF is known to act as an SRO for a broad range of financial intermediaries, including those dealing with virtual assets and cryptocurrencies. It provides regulatory compliance and AML services to its members, which can include VASPs.

PolyReg Allg. Selbstregulierungs-Verein

PolyReg is a general SRO recognized by FINMA, which also covers some entities operating with virtual assets. Like VQF, it offers regulatory oversight to its members, ensuring compliance with Swiss financial regulations, which may include VASPs under certain conditions.

Strict adherence to AML regulations is required of these providers; this includes following KYC procedures and the Travel Rule and ensuring that security tokens are appropriately evaluated and listed in line with legal requirements. To provide thorough regulatory compliance and licensing support, VASPs are also advised on licensing needs, which range from FINMA no-action letters (that provide regulatory clarity and assurance to entities under FINMA's jurisdiction) and SRO affiliation to securities dealer licenses and fintech licenses.​

Benefiting from SRO membership, financial intermediaries are able to conduct crypto and fiat exchange operations, trade a variety of assets, provide crypto custody, initiate initial coin offerings (ICOs), manage assets, issue payment instruments, take deposits up to CHF 1 million, and assist with asset transfers such as remittances.

Examples of VASPs operating under the SRO license in Switzerland

Below are the key VASPs allowed to operate under the SRO license in Switzerland due to their compliance with Swiss regulations and their relevance in the current financial landscape:

Crypto-to-crypto trading platforms

These services make trading cryptocurrencies for one another possible without involving fiat money. They are essential for traders who want to hedge against market fluctuations or diversify their holdings of digital assets.

Crypto-to-fiat exchange services

These platforms facilitate the conversion of cryptocurrencies, such as Ether (ETH) and Bitcoin (BTC), into conventional fiat currencies, such as CHF, USD, and EUR. Their function as a link between the established financial sector and the nascent digital asset market, providing access and liquidity to a wide spectrum of customers, highlights their significance.

Bitcoin Suisse is a pioneering crypto-financial services provider based in Zug, Switzerland; it offers trading, brokerage, and storage services, including a platform for exchanging cryptocurrencies for fiat currencies.

Tokenization platforms

These enable the creation of digital tokens that represent real-world assets like like commodities, real estate, or artwork. Tokenization is an important service offered by VASPs since it creates new opportunities for investment, liquidity, and ownership transfer.

Custodial wallet services

Custodial wallets, which provide safe storage options for digital assets, are crucial for individual and institutional players in the crypto space. They offer an easy-to-use asset management interface and ensure the security of private keys.

When funds are stored in a segregated wallet, there are no caps on the total amount. In contrast, using a communal (omnibus) wallet introduces a cap, restricting the total holdings to CHF 1 million.

Trading and asset management services

Users are permitted to engage in cryptocurrency trading, manage crypto assets (excluding security tokens, traditional securities, and derivatives), and offer market-making services in the crypto space.

Sandbox environment for public deposits

Participants may accept deposits from the general public within the controlled experimental framework, up to a maximum of CHF 1 million. However, this cap does not apply to deposits made by institutional investors that have sophisticated treasury functions. Furthermore, some circumstances may permit deviations from these set deposit caps.

Decentralized finance (DeFi) services

While DeFi encompasses a wide range of services, Swiss-regulated VASPs that provide DeFi solutions including yield farming, lending, and borrowing are particularly notable. By utilizing blockchain technology to provide transparent, permissionless financial solutions, they exemplify the forefront of financial innovation.