Distributed ledger technology/blockchain

Distributed ledger technology/blockchain

DLT/blockchain offers the financial industry numerous opportunities in the form of promising use cases relating to both the development of new business models and to increasing the efficiency of the activities they have pursued to date.

Greater control over own data thanks to DLT/blockchain

The way that DLT/blockchain technology works can be compared to a digital notary. All transactions are examined and verified by a large number of notaries in a network. After this step, all of the entries are saved in a decentralised manner in identical copies on different databases. As a result, the technology makes it possible to transfer and manage not only information, but also assets and their ownership directly between different parties via the internet. The technology promises significant advantages: the system functions without intermediaries and is better protected from external attacks as a result of the various data sets. Because they are interconnected, it is no longer possible to manipulate the individual entries once they have been saved.

Taking advantage of opportunities – overcoming challenges

The use of DLT/blockchain provides major opportunities for both banks as well as clients. DLT/blockchain reduces the costs of customer identification. Customer data is available more quickly, which makes authentication more efficient. At the same time, it strengthens the rights of the customer. They are given sole ownership of their digital identity with a key that gives them access to personal data and certificates.

Another opportunity is the tokenisation of assets. Tokenisation is the process of converting rights to an asset into a digital “token”. DLT/blockchain plays an important role in this process. It offers key advantages over traditional asset securitisation, such as greater transparency, efficiency and security for all parties in the ecosystem. 

Established intermediaries and their business models are facing fundamental challenges as a result of DLT/blockchain. They must take advantage of their financial expertise, broad customer base and the significant trust that they enjoy. The legal situation has not yet been clarified on most points. Focus must be placed on data protection and secure data transmission. Questions of responsibility and liability also pose a challenge. What is essential here is determining, on a case by case basis, which area of responsibility a possible mistake arising from the use of DLT/blockchain falls under.

There is also still a need for clarification when it comes to cryptocurrencies as a use case for DLT/blockchain technology. Among other things, this includes the legal classification of cryptocurrencies, how these are handled from a tax perspective as well as the security-related and legal requirements for the custody of keys.

The Swiss Bankers Association’s (SBA) position

The SBA remains committed to promoting innovation relating to DLT/blockchain, but also to minimising risks through regulatory measures. Only if the best global framework conditions prevail will Switzerland be able to continue to be a leader in the global competition between financial centres and promote growth and value creation at home.

We welcome the Federal Council's proposal in November 2019 to quickly create legal certainty. Developments in the DLT/blockchain segment are taking place rapidly. Switzerland should therefore continue to pursue a legislative and regulatory approach that is as principle-based and technology-neutral as possible. We also welcome the fact that adjustments are being made within the existing legal framework and that a new, specific blockchain or DLT law has been dispensed with. 

The SBA will continue to strive for close and constructive collaboration with the authorities and relevant associations to clarify open issues and contain potential risks.