SWITZERLAND Law and Practice Contributed by: Oliver Widmer and Niku Gholamalizadeh, Pestalozzi
banks and other types of financial institutions. In most cases, activities are deemed to be carried out on a professional basis, if pre-defined thresholds are met/ exceeded. Activities below such thresholds can be carried out without a FINMA licence (unless otherwise provided by law). 1.1.3 Regulation of Blockchain Technology Blockchain itself is not specifically regulated in Swit- zerland. The regulatory approach to blockchain-based industries in Switzerland is characterised by a tech- nology neutral application of existing law. However, regulators continue to monitor the industry’s activity and its needs, and increased industry-specific legisla- tive activity has been observed in recent years. Blockchain activities are generally subject to the same legal and regulatory framework as comparable tradi- tional activities, with targeted adjustments introduced by the DLT Act, which entered into force in 2021. FIN- MA applies the principle of “same risks, same rules” when supervising blockchain-based business mod- els and engages with market participants within this framework. There are no use cases that are prohibited solely because they are blockchain-based; however, activities such as accepting public deposits, issuing tokens with securities like characteristics or operating payment systems are subject to the relevant licensing and regulatory requirements. Data protection considerations are a key legal aspect of blockchain-based products and services in Swit- zerland. Swiss data protection law grants individu- als the right to information, as well as the rights to access, correction and deletion of their personal data. In the context of public blockchains, the enforcement of these rights is, however, practically limited due to the absence of a central data controller and the immu- table nature of blockchain records. Common mitiga- tion approaches include storing only hash values on chain while keeping personal data off chain, as well as ensuring that users provide informed consent prior to using blockchain-based products or services. 1.1.4 Smart Contracts Switzerland has no specific laws or binding court deci- sions on smart contract enforceability. Under prevail- ing legal doctrine, a smart contract does not qualify
as a contract in the traditional legal sense under the Swiss Code of Obligations (CO). Instead, it is under- stood as software linked to blockchain-based data sources, which automatically performs the contractual rights and obligations embedded within it when cer- tain conditions are met. Due to the automated character of a smart contract, the application of civil law principles concerning the formation and execution of traditional contracts to smart contracts raises a number of questions. According to the prevailing doctrine, a computer sys- tem lacks the legal personality required to enter into a contract. There may also be legal uncertainty due to the pseudonymity of the users or participants in blockchain networks, and even their legal capacity to initiate transactions that are then automatically executed by the smart contract could be questioned. The legal validity of arrangements related to smart contracts is not, however, prima facie excluded. If the objective criteria of a valid contract conclusion are met, smart contracts can be enforceable in Switzer- land. However, Switzerland maintains certain formal requirements for certain types of contracts (wet-in sig- natures), which cannot be met by entering into smart contracts. Currently, Swiss doctrine is rather restric- tive in this area and contracts not fulfilling the formal execution requirements are typically deemed to be null and void. 1.1.5 Industry and Trade Bodies In Switzerland, there are several self-regulatory organ- isations (SROs) that may supervise blockchain-based businesses. In many cases, blockchain-based busi- nesses that qualify as financial intermediaries need a licence from FINMA to operate as a financial institution (eg, a securities firm), as a bank (eg, fintech licence) or as financial market infrastructure (eg, payment sys- tem), which includes FINMA supervision in general. Blockchain-based companies may also qualify as financial intermediaries but do not require any finan- cial market licence for their business activities. In par- ticular, this applies to blockchain-based businesses that provide payment transaction services – ie, carry out electronic transfers for third parties or issue or manage means of payment, for instance (digital) credit cards. In such cases, financial intermediaries must
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