Custodial or Non Custodial Wallet Services in Switzerland

Custodial or Non Custodial Wallet Services in Switzerland

This article aims to discuss Custodial or Non Custodial Wallet Services in Switzerland. We’ll start by understanding the principle behind non-custodial wallet services, including the necessity of obtaining permission from a Self-Regulatory Organization (SRO). Then, we’ll transition to the realm of Custodial or Non Custodial Wallet Services in Switzerland, highlighting the distinct requirements for utility, asset, and payment tokens, and the exemptions involved. Further, the article delves into the prerequisites for a Fintech License and the conditions under which a full banking license becomes necessary. By the end of this post, you’ll have a clear understanding of the Custodial or Non Custodial Wallet Services in Switzerland landscape, equipped with the knowledge to navigate it effectively.

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WALLET SERVICES IN SWITZERLAND

NON-CUSTODIAL WALLET SERVICES

Principle: To provide non-custodial wallet services, obtaining permission from a Self-Regulatory Organization (SRO) approved by the Financial Market Supervisory Authority (FINMA) is necessary. In a non-custodial wallet, users maintain control of their blockchain address’s private keys. As the service provider cannot access these addresses, they cannot restore access if a user forgets their password. This grants users full control and responsibility for their funds’ security. An SRO is authorized to offer non-custodial wallet services for various tokens, including payment tokens.

CUSTODIAL WALLET SERVICES – EXEMPTIONS

For custodial wallet services involving utility or asset tokens, at least SRO permission is required. The following framework applies:

1. Individual Storage: Crypto assets must be stored in individual blockchain addresses for each client, rather than in collective custody.
2. Availability: The assets should always be readily accessible to clients. This means the custodian cannot engage in activities that would hinder returning the crypto assets to clients.
3. Token Types: Services can hold utility or asset tokens, but not payment tokens.

Remark: If the crypto assets qualify as securities (e.g., certain asset tokens, and in some cases, utility tokens), and the custodian is not involved in trading these assets on behalf of clients, a securities firm authorization is not needed.

CUSTODIAL WALLET SERVICES FOR PAYMENT TOKENS (CRYPTOCURRENCIES)

To provide custodial services for payment tokens, at least a Fintech License is required. This distinction is due to the payment tokens’ characteristics resembling fiat money. As fiat money deposits typically need a banking license, custodians of payment tokens also need to obtain a banking license or a Fintech license, especially if held in collective custody.

Fintech License and Custodial Wallet Services

Under Article 1b, Paragraph 1 of the Banking Act, the Fintech license (a type of banking license with relaxed requirements) applies to companies that:

1. Accept deposits or ‘crypto assets defined by the Federal Council’ up to CHF 100 million, or publicly advertise such services.
2. Do not invest these deposits or crypto assets, and ensure they are not interest-bearing.

‘Crypto assets defined by the Federal Council’ must meet these conditions:

1. serve a payment purpose (e.g., cryptocurrencies).
2. be held in collective custody.
3. remain available for the depositing client
4. have a clearly determined share for each depositing client.

Failure to meet these conditions classifies the assets as public deposits, requiring a full banking license.

Fintech Licensed Operator Custodial Wallet Services

Crypto custodians typically need a Fintech license to offer custody services if they meet these criteria:

1. serve over 20 clients or publicly advertise their services.
2. hold crypto assets in collective custody (non-segregated)
3. manage crypto assets with a payment purpose (e.g., cryptocurrencies)
4. avoid paying interest on or reinvesting the deposited crypto assets.
5. inform investors about the absence of deposit protection and the risks of no immediate reimbursement in bankruptcy.

Requirements for a Full Banking License

A banking license is generally required for custodial services if:

• The provider serves over 20 clients or publicly advertises such services.
• Crypto assets are held in collective custody.
• The assets have a payment purpose (e.g., cryptocurrencies).
• Interest is paid on the deposited crypto assets, or they are reinvested.

Do not hesitate to contact our experts if you need any more information on this matter at connect@swissfintechpro.com