Staking cryptocurrencies in Switzerland – do you need a banking license?
The following explanations are based on the assumption that we are dealing with cryptocurrencies (means of payment – payment token), which are stored (staked) not for the purpose of technical validation of the system, but, for example, in order to raise the price by deliberately their amount on the market.
A person who agrees to have his tokens staked by a token issuer or other entity offering staking receives special compensation for doing so – usually in the form of more tokens.1
Such a structure results in the comparison of staking to bank deposits, so the law-regulatory consequences of such a business model should be considered in this case.
In the following part of the article we assume that a person who transfers money or cryptocurrency for safekeeping is the Keeper and a person who stores this money or cryptocurrency is the Staker.
According to Article 1(2) of the Swiss Banking Act, the commercial acceptance of deposits from the public is generally reserved for banks.2 Therefore, does the public acceptance of payment tokens (e.g. BTC or other) as deposits require a banking license?
The term public deposit is defined broadly. Essentially, all obligations to third parties that give rise to an obligation to repay a debt in the form of payment tokens are considered deposits. Commerciality is assumed when deposits from at least 20 customers are accepted on an ongoing basis, and when they are offered to the public.
The object of the debt to be repaid must be a means of payment. While this requirement is certainly met for currencies considered as legal tender, extending it to cryptocurrencies such as Bitcoin may be questionable. According to FINMA3, a virtual currency may functionally be considered a public deposit item if it can be widely used as a means of payment and is convertible into an official currency.
These doubts were resolved by the Swiss legislator, who introduced Article 5a to the Swiss Banking Act defining crypto-assets and considering them as such assets which, in fact or as a result of the intention of the organizer (payment system) or issuer of such asset (issuer of the means of payment), serve as a means of payment for the acquisition of goods or services or as a means of exchange of money and other values.
An essential feature of the public deposit offered by banks is that the funds accumulated on customers' accounts enter into the bank's assets and therefore into the bankruptcy estate. Therefore banks have to operate on the basis of permits and maintain liquidity at all times in order to protect customers from insolvency. However, the deposit qualification does not apply if the transferred assets do not enter into the bankruptcy estate of the bank, as they can be separated (segregated) from the bank's assets (e.g. contents of safes).
Generally, items about which ownership can be established are eligible for segregation. Currently, the prevailing view is that cryptocurrencies are not things. Therefore, they cannot be segregated. However, if cryptocurrencies are stored in separate wallets for each client, then such storage will not be considered a deposit.
In summary, it should be assumed that the obligation to obtain a banking license will be encountered in the case of storing cryptocurrencies on a single wallet belonging to the custodian without the possibility of segregating the funds on individual depositors, with the depositor not being able to dispose of the cryptocurrency without the participation of the custodian.
According to the prevailing view in Switzerland, a so-called small bank license (FinTech) will be required when cryptocurrencies are stored on a wallet that is separate from the bank's asset mass, but which holds the cryptocurrencies of multiple depositors at once (the so-called omnibus wallet).
Thus, if the staking model meets the conditions for obtaining a banking or FinTech license – the entity offering the staking service will need to obtain a banking license.
In turn, funds up to a total value of CHF 1 million (Article 6(2) Swiss Banking Act) may be accepted without a banking license (and also without a FinTech license) even if the staking model would meet the conditions for the obligation to apply for or hold a license, provided that they are not interest-bearing or invested. Constituents should be informed in advance that the custodian is not subject to FINMA supervision and that the purpose of this exemption is to create a regulation-free operating area for financial innovators ("sandbox").
1 We will not consider here the question of interest, as it is not relevant to the legal construction of the bank deposit.
2 In order for an entity to call itself a bank and provide banking services, it must have a banking license. Licensing requirements for banks will not be covered in this article.
3 Eidgenössische Finanzmarktaufsicht - FINMA