The Swiss Financial Market Supervisory Authority (FINMA) has released detailed guidance providing information about the regulatory requirements for payments on the blockchain for financial services provided under their supervision. The guidance begins explaining how cryptocurrencies and related technologies create new opportunities for criminals and terrorists to launder their proceeds or finance their illicit activities, which is why the Financial Action Task Force (FATF) is setting higher standards on virtual assets to prevent this from happening. The guidance is especially targeting blockchain service providers such as exchanges, wallet providers and trading platform, forcing them to comply with existing money laundering regulations.
Luckily, the FINMA does not take a totally negative stand towards cryptocurrencies, claiming that the innovation behind blockchain and digital assets is admired but needs to be heavily regulated. The biggest issue for them is the anonymity related to this technology, which is precisely why the task force is straightening their rules.
As for the new information required, both the client and the beneficiary must provide certain information along with the payment orders to the financial intermediary, giving it the opportunity to verify names against sanction lists, and confirm if the information is correct. Said information is not necessary to be transmitted on the blockchain. The purpose of the provision is to ensure that sanctioned subjects or states do not take advantage of anonymity to avoid financial restrictions.
Furthermore, the guidance states that if an institution supervised by FINMA is not able to send and receive the information required in payment transactions, such transactions are only permitted from and to external wallets if these belong to one of the institution’s own customers. Their ownership of the external wallet must be proven using suitable technical means. Transactions between customers of the same institution are permissible. A transfer from or to an external wallet belonging to a third party is only possible if, as for a client relationship, the supervised institution has first verified the identity of the third party, established the identity of the beneficial owner and proven the third party’s ownership of the external wallet using suitable technical means.
If the customer is conducting an exchange (fiat-to-virtual currency, virtual-to- fiat currency, or virtual-to-virtual currency) and an external wallet is involved in the transaction, the customer’s ownership of the external wallet must also be proven using suitable technical means. If such proof is not available, the above rules for payment transactions apply.