Crypto regulation in Switzerland: Bity challenges FINMA in an unprecedented case

The requirements of financial market regulators can sometimes infuriate players in the crypto industry. While some of these players are content to denounce these rules, others go further to make themselves heard. The latest squabble to date between a player in the crypto ecosystem and a regulator is that between the exchange Bity and FINMA. The Swiss company denounces the excessively onerous rules of the Financial Markets Supervisory Authority.

Bity takes FINMA to court

In the world of cryptocurrency, it is usually regulators who attack exchanges. The SEC (Securities and Exchange Commission) in the United States, for example, had launched lawsuits against Binance and Coinbase last June. However, in an unusual twist, it is now the turn of an exchange, Bity, to file a complaint against a regulator. Bity accuses FINMA (Swiss Financial Market Supervisory Authority) of arbitrarily lowering transaction limits at Bitcoin ATMs and pushing users to reveal their identities. According to the new FINMA guidelines, users must undergo a KYC (Know Your Customer) verification if they transact over 1000 Swiss francs in a 30-day period.

Alexis Roussel, CEO of Bity deplores these new rules and declares: “Normally, this ordinance only applies to companies that have a license with FINMA.” He continues in these terms: “This does not apply to companies like Bity, Western Union or any wealth manager. But there is a soft power system at play here that is very loose, and whenever FINMA puts something in its own ordinance, all other self-regulatory organizations have to follow that rule.”

FINMA’s reaction

The Financial Markets Supervisory Authority declined to comment specifically on Bity’s folding. She still justified her new demands. “The context for the lowering of the threshold is not only the international standards (recommendation of the FATF, the standard setter in the field of the fight against money laundering, which set the threshold of 1000 USD/EUR for currencies virtual), but also the high level of money laundering risk associated with these services” FINMA said in an email.

FINMA adds that this new decision is based on its recent observations and aims to clean up the Swiss crypto industry. She states, in this regard, that there is concrete evidence that cryptocurrency ATMs in Switzerland have been misused as a common means of payment by certain drug trafficking networks.

This case highlights the growing tension between financial regulators and the cryptocurrency industry in Switzerland, a country known for its progressive approach to fintech and which has incidentally unveiled a bold pilot plan for the CBDC in last June. While FINMA seeks to protect consumers and prevent illegal activities, the measures taken may be perceived by some industry players as a hindrance to innovation and democratic access to financial services. Bity’s complaint raises important questions about the balance between regulation, protecting user privacy and supporting a growing industry. It will be interesting to watch how this case develops, as it could have implications for how Switzerland regulates and shapes the future of blockchain and cryptocurrencies.