Switzerland has taken a significant step towards incorporating blockchain technology into its financial market. The country’s financial regulator, the Financial Market Supervisory Authority (FINMA), has granted its first license for a distributed ledger technology (DLT) trading facility.
The newly approved platform will be operated by BX Digital AG, a subsidiary of BX Swiss AG and part of the Boerse Stuttgart Group, as announced by the platform.
FINMA, as part of the licensing process, has addressed crucial underlying issues and mandated a business continuity strategy, particularly concerning the settlement infrastructure based on a public blockchain.
“To minimize operational risks, financial market regulation necessitates that the operator conduct technical checks on the technology used, such as scrutinizing the source code employed by smart contracts,” stated FINMA.
A Landmark in Digital Securities Trading
The platform by BX Digital enables the multilateral trading of DLT securities, marking a breakthrough in regulated blockchain-based trading.
The approval, granted under the Financial Market Infrastructure Act (FinMIA), permits BX Digital to offer a legally compliant marketplace for institutional participants, primarily banks. However, the platform will not provide custody services for DLT securities.
By applying for a small-scale DLT trading facility license, BX Digital adheres to specific thresholds outlined in the Ordinance to the Financial Market Supervision Act (FinMIO), allowing for regulatory flexibility while upholding operational integrity.
Switzerland’s DLT Act, which came into effect on August 1, 2021, has laid the groundwork for the regulation of blockchain-based financial services. The legislation aims to strike a balance between technological innovation and financial stability and security.
The Legal Framework Supporting the Approval
By integrating DLT into the existing financial market infrastructure, Switzerland continues to solidify its position as a global leader in digital finance.
As part of the licensing process, FINMA has imposed stringent operational safeguards, including a business continuity management (BCM) strategy. The regulator also mandated technical audits of the technology used, such as verifying the smart contract source codes, to mitigate risks associated with blockchain operations.
BX Digital’s trading facility utilizes the Ethereum public blockchain for settlement. To enhance payment processing efficiency, the platform is linked to the Swiss Interbank Clearing (SIC) system, operated on behalf of the Swiss National Bank.
This integration aims to facilitate better delivery-versus-payment (DvP) transactions through smart contracts. When a DLT security is transferred on the blockchain, the corresponding payment is automatically executed via the SIC system.