The Swiss Financial Market Supervisory Authority (FINMA) has announced a change in practice, stating that a banking license would be required for staking services in the future. The Swiss blockchain industry is warning that this could make staking less competitive from Switzerland.
FINMA justifies this shift by expressing concerns regarding the temporary locking of assets and the potential confiscation of assets, which presents a significant challenge to the industry's current status quo. This is emphasized in a joint statement by two associations, the Swiss Blockchain Federation (SBF) and the Crypto Valley Association (CVA). It's a fundamental change that has caused excitement throughout the blockchain community.
FINMA's attempt to restrict staking protocols
Staking represents an energy-efficient mechanism in blockchain networks like Ethereum, Solana, and Cardano. Participants are rewarded for staking cryptocurrencies and validating transactions. Staking is gaining importance, with a market capitalization of staked assets reaching approximately USD 350 billion. There are various staking models, including user-driven staking (Self-Staking) and staking by service providers. Staking services are currently offered in Switzerland by both banks and service providers, subject exclusively to anti-money laundering laws.
FINMA's rationale for changing its practice is based on the temporary locking of assets by staking protocols (Lock-Up) and the risk that assets could be seized from participants in cases of improper validation or other rule violations (Slashing). According to FINMA, these characteristics of staking protocols mean that assets are no longer immediately available, leading them to be considered public deposits rather than custody assets under banking regulations, which would require a banking license.
Possible negative consequences
The Swiss blockchain industry considers this interpretation to be incorrect and warns of potential negative consequences. Staking is in no way associated with transformation services and is, therefore, not comparable to the core business of banks. The proposed change in practice would also jeopardize the legal certainty achieved through the unanimously passed DLT legislation in Parliament, which strengthened customer protection in the event of custodian insolvency, among other things.
The blockchain industry points out that FINMA's new practice could lead to the migration of this business abroad. Non-banks would no longer be able to offer these services. While banks would have the necessary licenses, they would face prohibitive capital requirements in the crypto business sector, making them less competitive. Swiss customers would also be at a disadvantage because deposit insurance would not apply in the case of Staking.
The blockchain industry calls on FINMA to make the regulatory process transparent and actively involve the affected stakeholders. The proposed practice is not in line with FINMA's mission to strengthen Switzerland's financial center; on the contrary, it would severely limit Switzerland's innovation capacity and competitiveness on the international stage.