After almost two years of negotiations and product restructuring, Xapo, “the Fort Knox of bitcoin” has achieved conditional approval from the Swiss Financial Market Supervisory Authority (FINMA) to operate in Switzerland. Although subject to conditions, the approval marks the beginning of a new era of banking in Switzerland, offering a new type of digital financial intermediary to serve people, to compete with traditional fiat banks, and to create a less monopolistic, more democratized financial environment.
Switzerland’s government is among several in the world to have taken a cautious, yet progressive position toward legislating and regulating cryptocurrencies, opening up a path for innovation among FinTech startups, and even FinTech veterans like Xapo. Defining its strategic goals for 2017 to 2020, FINMA states, “The long-term success of Switzerland’s financial center relies heavily on its ability to innovate. FINMA is, therefore, adopting a more pro-innovation approach to regulation and supervision and will push for the removal of unnecessary regulatory obstacles for innovative business models.”
On November 11, 2016, SBB, Switzerland’s national railway, made bitcoin available for purchase with Swiss francs, in limited amounts, charging a 6 percent fee, at over 1,000 ticket machines throughout the country. The experiment will last for a two-year period to judge the demand for bitcoin in Switzerland. In December 2016, Swisscom, a major, state-owned Swiss telecommunications provider joined the Hyperledger blockchain project and will contribute to the ongoing evolution of blockchain technologies. Over the next three years, we should see some fascinating things taking place in Switzerland including new legislation to create a new category of “crypto-banks” along with specific procedures for regulating them.
Following Switzerland’s example, several other governments are also taking steps to allow for more innovation in the financial sector by fleshing out new legislation and regulations that allow FinTech startups to propagate. In Canada, the Ontario Securities Commission has recently put together a Fintech Advisory Committee consisting of heads of businesses in the cryptocurrency and blockchain industry. It is “the first dedicated team by a securities regulator in Canada to provide direct support to eligible FinTech businesses in navigating the regulatory requirements. OSC LaunchPad strives to keep regulation in step with digital innovation.” In the United States, the Office of the Comptroller of the Currency, a division of the U.S. Department of the Treasury began accepting applications for special purpose national bank charters from FinTech companies on December 6, 2016. These special purpose charters will create a federal standard for regulation that would allow FinTech businesses to operate throughout the U.S. without being required to get an individual license in each state.
To begin operations in Switzerland as soon as possible, Xapo will join a self-regulatory organization or SRO to comply with Swiss anti-money laundering regulations. The Bitcoin company is known for its high level of security and protects cryptographic keys that safeguard funds via the deployment of a three-layer storage solution, including a physical vault inside the Alps Mountains. The approval from FINMA to operate in Switzerland will enable Xapo to move their headquarters closer to their security infrastructure and allow them to reap the benefits of Switzerland’s prestigious operating, financial and regulatory environment.