Regulations: Mica, good or bad for the Swiss Crypto financial center?

European regulations
Mica, good or bad for the Swiss crypto financial center?
The European Union has adopted the Mica regulation for the Crypto markets. Swiss actors must comply to target the EU, or turn to more flexible markets.
European regulatory framework
As it was reported in particular herethe European Union has adopted a mica regulation ”, EU regulation 2023/1114 of the European Parliament and the Council of May 31, 2023 on the crypto-active markets. This one has just come into force on December 31, 2024!
In essence, as is often the case with regard to European regulations, extensive prudential obligations apply to the various actors, such as the publication of white pods (having to contain all the details concerning a crypto-active). Most importantly, in some cases, offerings must obtain approval (prudential license) in their country of origin, member of the EU, cf. Mica’s summary published by the EU.
Swiss regulatory framework
As a reminder, Swiss law is much more “light” concerning cryptocurrencies. In a concern for pragmatism, cryptocurrencies have been integrated into ordinary laws, already existing, such as the Code of Obligations for the main aspects of private law, and financial laws (Lsfin, Lefin, LBA) for aspects of prudential regulations. We can in particular consider that some payment tokensas Bitcoin, partly escape regulations in Switzerland.
Offers to the public (ICOS) are categorized and regulated according to the guidelines for the practice of finma, codified in its Practical guide .
Swiss articulation-EU: Cross-through effect
Like many other financial regulations, there is a “cross-short” effect, that is, cross-border. In other words, a service provider in an out of the EU like Switzerland, if it aims for people in the EU, will in principle be applied Mica. This can lead to heavy consequences for active cryptos providers from Switzerland to Europe. In this regard, the Finma generally requires that cross -border rules applying to Swiss financial institutions be respected.
In general, the exception to the above requirements is said to Reverse requesteither when a contractual relationship is created or services are provided on the initiative of the customer.
In this case, the European Securities and Markets Authority (ESMA), under the delegation contained in Mica, very strictly regulated the conditions of such an exception of Reverse request. In our opinion, this is a new trend aimed at restricting possible exemptions. Fundamentally, according to Directors of L’Sma:
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A company should not be deemed to be requesting customers if the service or activity in crypto-active is provided on the exclusive initiative of the customer, which must be interpreted in a restrictive manner.
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The evaluation of the request of a customer or the exclusive initiation by the customer must be strictly factual. Contractual agreements or non-responsibility clauses cannot cure contrary facts.
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Mica must be interpreted as not allowing third-party countries to offer the customer other crypto-actives or crypto-active activities or activities, even if these services or activities are of the same type as those initially requested by the customer , unless they are offered within the framework of the initial transaction.
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However, the company of a third country will not be authorized to market with the customer other transactions of given cryptocurrencies or transactions of similar cryptifs a month later.
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Third country companies should be able to provide documents to follow the relationship with the customer.
Avis
As we can see, the will of the legislator is to operate strict control over Cryptos activities in the Mica field, similar to other European prudential regulations, such as MIFID, AIFMD and ESG regulations.
ESMA’s approach to strictly regulating the exception to the transboundary application of Mica – the Reverse request – and even impose a time limit, also testifies to this will.
Thus, for Swiss providers who are aimed at customers in the EU, the situation seems clear to me: these must now be ready and in compliance with Mica.
Two tracks, borrowed from the private banking world come to mind.
First, according to certain arguments of market practice in Switzerland, a discretionary management mandate is deemed to be carried out against management. Although this is not, to my knowledge, still very popular in the crypto world, discretionary mandates managed in cryptos in Switzerland could possibly not fall into the field of application of Mica (because outside the scope of space application). Perhaps this regulatory aspect will encourage providers to expand their offer on this kind of service.
Second, as for “classic” private management, when the regulatory pressure had reduced the attraction of European customers, some providers will be interested and may be limited to customers outside the EU, coming from jurisdictions with fewer regulatory constraints , for example Dubai, Singapore.
Thus, in this perspective of differentiation compared to Europe, and given the enthusiasm aroused by the Records of Bitcoin, Switzerland can attract interesting actors and Customers Crypto and thus be a breeding ground for innovation!
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