CryptoLaw Newsletter #7 - 22 June 2021

Swiss DLT law, China mining crackdown, France continues its CBDC exploration and US regulators imposed $2.5 billion of penalties since 2009 for unlawful crypto activities.

By Ann Sofie Cloots

Hello Cryptolawyers,

Regulatory jitters continue to shake markets, with much of the recent turmoil linked to China’s continued crackdown on miners and crypto-related transactions.

Meanwhile, Switzerland continued its efforts to update its regulatory framework and make it more DLT- and crypto-suitable. (Scroll down to the Spotlight section below).


Digital assets

  • China is intensifying its crypto crackdown and mining activity in the country decreases significantly. (Bloomberg) So did crypto prices, which nosedived again in recent days. The People’s Bank of China announced that Chinese banks and payment institutions must further crack down on crypto transactions. (Decrypt) Several China-based miners packed their equipment to set up shop elsewhere, in a move is likely to change how mining power is distributed globally.

  • South Korean crypto-exchanges halt trading certain coins as regulatory pressure mounts. (Coindesk)

  • Switzerland – The new DLT Act and associated Ordinance that will make the Swiss legal framework more DLT- and crypto-compatible, will enter into force on 1 August, the Swiss Federal Council decided (see Spotlight below).  

  • US – Democrats formed a working group on crypto and CBDC, according to Congresswoman Maxine Waters. She said the working group will ‘engage with regulators and experts to do a deep dive on this poorly understood and minimally regulated industry’. (Cointelegraph)

  • US – SEC litigation against Ripple may extend into 2022.  Fact discovery and expert discovery deadlines are extended to August 30 and October 15. (Decrypt)

  • US –   US enforcement action has resulted in U$2.5 billion of penalties since 2009, according to blockchain analytics firm Elliptic. The bulk of that amount came from SEC enforcement actions ($1.69 billion), followed by the CFTC ($624 million), FinCen ($183 million) and OFAC ($0.6 million). Most of the fines related to unregistered securities offerings ($1.38 billion) and fraud ($928 million), followed by AML violations ($183 million).

  • UK – Bitcoin is not money, says Bank of England’s Andrew Bailey. (Decrypt) Bailey has a long track record as a crypto-critic.

  • Canada – After accusing crypto exchange KuCoin of securities laws violations, the Ontaria Securities Commission now has crypto trading platform ByBit on its radar. The OSC brought an action against ByBit for unauthorised trading activities in violation of the Securities Act, as well for non-compliance with prospectus rules.

  • El Salvador – When El Salvador adopted the BitcoinLaw that makes bitcoin legal tender, not everyone was thrilled. Some investors thought it was no more than a distraction. The IMF expressed concerns. Now the opposition party is adding fuel to the fire: a regional deputy of an opposition party filed a lawsuit against the BitcoinLaw, together with a group of El Salvadorans. The lawsuit calls the law unconstitutional and says it ignores the ‘negative impact’ it will have on people’s lives. The lawsuit states that the law was not even discussed by deputies in the legislative chamber. (El Mundo and Coindesk)

  • World Bank and El Salvador – The World Bank rejected El Salvador’s request for help on implementation of its plans to make bitcoin legal tender, due to ‘environmental and transparency drawbacks’. (Reuters)

  • Portugal – Banco de Portugal, the Central Bank of Portugal, for the first time granted licenses to two crypto exchanges. The pair were recognized as virtual asset service providers under Law No 83/2017 of 18 August 2017.  (Banco de Portugal and Coindesk)


  • US – Billionaire crypto-investor Mark Cuban calls for more DeFi regulation after TITAN token loses all its value in a day: ‘There should be regulation to define what a stable coin is and what collateralization is acceptable,’ he wrote. (Bloomberg and Decrypt). While there were initial allegations of a ‘rug pull’, a post-mortem by issuer Iron Finance blames a bank-run for the price crash. ‘We just experienced the world’s first large-scale crypto bank run’, it stated.

  • DAOs – Curve DAO is contemplating a governance proposal suggesting the DeFi project should protect its intellectual property rights. Unsurprisingly, critics of the proposal see it as a betrayal of the open source philosophy. However, there is concern that a lack of IP protection renders the open source code vulnerable to copycat platforms, which might claim IP protection themselves. (Coindesk)

  • More DAO stuff – Can DAOs file a lawsuit? Kevin Homiak started a Twitted thread on the question, mostly focusing on the US (Wyoming DAO LLC, partnership and 501(c)(4)).


  • UK  – Bitcoin energy ‘shortcomings’ will not deter CBDC research, says Bank of England’s Tom Mutton. (Decrypt)

  • US  – What we learned from the past week’s CBDC hearings in Congress. (The Block)

  • Israel – Bank of Israel has already tested a digital shekel. (Coindesk)

  • France – Banque de France takes the next step in its CBDC experimentation: it tested CBDC for settling securities transactions, in collaboration with Swiss digital-asset bank SEBA and private bank Banque Internationale à Luxembourg. (Coindesk)

  • EU – A digital euro offers better privacy protection than private stablecoins, says ECB’s Fabio Panetta. (FT and Cointelegraph)

  • EU – The European Data Protection Board issued a letter on the same theme of privacy and data protection. The letter, addressed to EU institutions, stated that a ‘very high standard of privacy and data protection is crucial to reinforce the trust of end users and should be considered a distinctive element in the offering of a digital euro, representing a key factor of success.’ (EDPB and The Block)

  • China – A commercial bank enabled digital yuan-cash conversions at ATMs (Coindesk)


  • Australia – A Senate Committee wants the government to look into blockchain to prevent imports of forced-labour goods, suggesting changes to customs laws in a report. (Coindesk)


Switzerland tweaks legal framework to accommodate DLT, digital assets (and some DeFi?)

The Swiss Federal Council continued its efforts to update its legal framework to accommodate Distributed Ledger Technology (DLT) and digital assets. New rules adopted on 18 June explicitly address the challenges of Decentralized Finance (DeFi) and impose anti-money laundering (AML) rules on certain types of wallet providers, pre-empting strict AML rules proposed by the Financial Action Task Force (FATF).

In September last year, Switzerland adopted the Federal Act on the Adaptation of Federal Law to Developments in Distributed Ledger Technology (DLT Act). One part of the DLT Act recognizes DLT-based securities as a new type of DLT-based uncertificated security (Registerwertrecht), in addition to the traditional intermediated security (Bucheffekten).

That part, amending the Swiss Code of Obligations, the Federal Intermediated Securities Act and the Federal Act on International Private Law, entered into force on 1 February this year.  

The remaining part of the DLT Act will enter into force on 1 August, together with a newly adopted Ordinance that amends ten ordinances to make them more DLT-compatible. This will lead to a couple of changes to the Swiss legal framework on DLT and digital assets.

The two main changes are amendments to insolvency rules (ensuring segregation of cryptoassets upon bankruptcy) and introducing tweaked rules for a new category of DLT-based trading facilities.

Insolvency rules: crypto-asset segregation

Insolvency rules are amended to provide greater legal certainty on the treatment of crypto-assets in case of bankruptcy. Changes to the Loi Fédérale sur la Poursuite pour Dettes et la Faillite (Debt and Insolvency Law) and Loi sur les Banques (Banking Law) stipulate that crypto-assets will be separate from the insolvent estate.

New category of DLT-based trading facility

A new licensing category has been created for DLT-based trading systems, amending the Loi sur l’Infrastructure des Marchés Financiers (Financial Markets Infrastructure Act). The amendments want to tweak the rules where the existing rulebook ‘does not make sense’ for technological reasons. The rules also clarify what ‘outsourcing’ means in the context of blockchain-based services, for example when a DLT-based trading facility relies on an external public blockchain like Ethereum, which is not operated by an ‘identifiable’ operator.

Bespoke rules or tweaking the rulebook?

Since the ICO hype of 2017-2018, lawmakers around the world have adopted different approaches to digital assets.

Some countries adopted crypto-bespoke laws, such as Malta or Cyprus, in the hope of bringing legal certainty and attracting crypto business. Adopting new laws takes time. The main risk of this approach is that such bespoke laws can create more legal uncertainty (for example, if the taxonomy is ambiguous) and that they risk being outdated quickly, as the sector develops fast.

Other jurisdictions did not adopt new laws, but interpreted existing laws and regulations as covering digital assets and DLT. Interpretative guidance can be issued more quickly than new laws. However, existing rules may not be a good fit for DLT and digital assets.

Switzerland, like some other countries, is taking a third approach: amending existing rules to make them more crypto- and DLT-compatible. The Swiss legal framework ‘is not fundamentally challenged’ by DLT, according to the commentary on the new Ordinance. Instead, ‘targeted amendments’ have been made. The commentary to the new Ordinance rejects suggestions to adopt bespoke rules on DLT, as  ‘incompatible with the aim of technology neutrality’.

The Swiss Federal Council looked beyond its own boundaries to draw inspiration from other jurisdictions. It noted that some jurisdictions (such as the US and the EU) do not have any DLT-specific rules, while an ‘increasing number’ of countries (such as Liechtenstein and Luxembourg) adopted crypto-specific rules.


The new rules clarify when AML rules apply to crypto-asset activities. The Swiss Council clearly took at heart the AML updates proposed by FATF.

AML rules already applied to intermediaries that had certain control rights over assets (pouvoir de disposition). The new rules will no longer require such control rights. Instead, AML rules will also apply if the intermediary has a sustained business relationship (relation d’affaires durable) with the counterparty.

‘This is the case, for example, for trading platforms without access to the private key of the client, but which allow nevertheless for the transfer of virtual currencies by way of smart contracts, over which they have control.’ In other words: non-custodial (decentralized) trading facilities will not automatically escape AML obligations. This provision appears to cast the net wide.

Moreover, certain wallet providers may also be caught by the AML rules: there will be a ‘sustained business relationship’ between third parties and digital wallet providers, if the latter keep and have access to one of the private keys in a multi-sig set-up, and a signature with that private key is required to make a transaction.

Non-custodial wallet providers are not covered by the AML rules, if (and only if) they merely provide the logistics ‘but do not offer any supplementary service’. If such supplementary services are provided only to financial intermediaries already ‘subject to adequate supervision’, the wallet provider will not be bound by AML rules. The reasoning is that the financial intermediary will already be covered by AML rules in such case.

In addition, some other DeFi systems are excluded from the new AML rules: ‘systems that are entirely autonomous, which do not involve a sustained business relationship’, are not covered by the AML Law. ‘Moreover, trading facilities that merely put into contact buyers and sellers and on which transactions take place without smart contract implying the possibility of access by the platform’ are also not subject to the AML rules, ‘because it concerns an activity of pure intermediation, without virtual currency transfer’.

In a clear nod to DeFi, the commentary to the new rules acknowledges that crypto-transfers increasingly take place in a decentralized way. ‘In practice, this makes the work of supervisory bodies harder’, it says. The new criterion of ‘sustained business relationship’ is meant to ease the burden on supervisors, by avoiding the difficulty of legally defining when an intermediary has control over crypto-assets.

What’s next for crypto-Switzerland?

Switzerland has long been a frontrunner in the field of DLT and crypto, home to ‘crypto-valley’ Zug and initially attracting the Libra foundation. The current DLT Act and associated Ordinance fit that picture of a country eager to keep its pole-position to attract DLT- and crypto-activity.

Thanks for reading!


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