FINMA clarified that Swiss financial institutions are only permitted to send and receive crypto transactions of their own clients. The announcement was a reaction to the FATF guidelines issued in June.

The Swiss Financial Market Supervisory Authority FINMA has published guidance on how it applies Swiss anti-money laundering rules to financial services providers in the area of blockchain technology. With these guidelines, FINMA reacts to an announcement made by the Financial Action Task Force (FATF) in June, on how financial institutions should govern digital transactions.

FATF wants member countries to identify the sender and receiver of crypto transactions

According to the FATF, financial institutions should identify the sender and receiver of cryptocurrency transactions of more than $1,000.

The required information for each transfer includes:

  • originator’s name
  • originator’s account number
  • originator’s physical address, or national identity number, or customer identification number that uniquely identifies the originator to the ordering institution, or date and place of birth
  • beneficiary’s name
  • beneficiary’s account number

Identifying the sender and receiver of a monetary transaction is crucial for combating money laundering, as the service provider receiving this information can then check the name of the sender against sanction lists. Thus, existing sanctions against individuals, corporations, or nations can be enforced.

FATF said it would give countries 12 months to adopt the guidelines, with a review set for June 2020. Although FAFT guidelines are not legally binding for any of its member countries, those that don’t follow risk being blacklisted.

Financial institutions can only process crypto transactions for their own customers

In its publication, FINMA clarifies that financial institutions supervised by FINMA are only allowed to send cryptocurrencies or other tokens to wallets that belong to their own customers and are only permitted to receive cryptocurrencies or tokens from such customers. Financial institutions are not allowed to either send or receive tokens from customers of other institutions.

The reason is that the identity of the customer had already been verified when onboarding the customer to the institution. FINMA argues that in state-of-the-art cryptocurrency networks, information about the sender and recipient cannot be transmitted reliably.

FINMA explicitly referenced the FATF’s guidance and lays out how the Swiss government will comply with new international standards. They write, “blockchain-based business models cannot be allowed to circumvent the existing regulatory framework. This applies particularly to the rules for combating money laundering and terrorist financing, where the inherent anonymity of the blockchain presents increased risks.”

As more Switzerland-based banks start to offer crypto-related services, these guidelines put restrictions in place that might hinder their operations. Just recently, FINMA has issued banking and securities dealers’ licenses to two crypto banks, namely SEBA Crypto AG registered in Zug and Sygnum AG registered in Zurich.

Anti-Money-Laundering bodies have their eyes on crypto

Governments and international bodies have realized the potential of cryptocurrencies and see a need to act. All EU-member states will have to introduce the fifth EU Anti-Money Laundering Directive (AMLD5) by the 10th of January into national law.

In August, the German government has therefore decided to introduce new anti-money laundering regulations starting next year. In 2020, cryptocurrency-related businesses such as digital exchanges, custodians, and wallet providers will need a Bafin-issued license.

In principle, there is nothing wrong with government bodies enforcing international money laundering regulations, as long as new regulations take into account the specifics of the technology. Industry leaders and regulators need to engage in a dialogue how blockchain can be effectively regulated, preventing the misuse of the technology, while still enabling new business models and technological innovation. 

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