Decentralized Finance (DeFi)
Many projects submitted enquiries to SFMA from the emerging area of “decentralised finance” in the year under review. This term describes a new form of openly accessible financial services.
The development, which has become known by the abbreviation “DeFi”, is linked to open-access, programmable blockchain systems in the form of smart contracts. DeFi has so far emerged particularly in the form of DeFi applications that facilitate financial market services such as the trading of tokens and the lending business. DeFi is largely based on peer-to-peer models. Traditional intermediaries such as banks and securities firms as a result do not play any role. Any service in the financial market that can be realised as a computer program can in principle also be implemented as a DeFi application. Unlike traditional financial market services, there are no individually identifiable or controlling operators for genuine DeFi applications. When processing enquiries, it is important to distinguish projects without identifiable operators from those that describe themselves as DeFi but are actually organised and controlled centrally and as a result similar to traditional financial market intermediaries. Such projects fall within the scope of financial market law. The specific enquiries to SFMA concerned trading platforms via which tokenised securities or cryptocurrencies can be traded. When responding to such enquiries, SFMA utilises the following approaches:
- SFMA applies the existing rules to DeFi applications and in doing so abstracts from the use of specific technologies or procedures (principle of technology neutrality).
- If a DeFi application offers the same service and poses the same risks as intermediaries in the traditional financial market, SFMA also applies the same rules (same risks, same rules).
- If, from an economic perspective, a DeFi application offers an activity under financial market law that would require licensing, SFMA also assumes a licensing requirement in the case of new types of technical or legal implementation (substance over form).
Stock exchange and central securities depository approved for the first time for the trading of tokens
On 10 September 2021, SFMA issued two approvals to operate financial market infrastructures based on distributed ledger technology (DLT): one to SIX Digital Exchange AG to act as a central securities depository and one to the associated company SDX Trading AG to act as a stock exchange. The Swiss financial centre thus for the first time has infrastructures that facilitate the trading of digitalised securities in the form of tokens and their integrated settlement. SFMA applied the existing provisions of financial market law in a technology-neutral way here in keeping with the “same risks, same rules” principle. The licences granted took the traditional route, namely approval to act as a stock exchange and central securities depository under the Financial Market Infrastructure Act. They have facilitated a close-knit value chain ranging from issue and trading through to the settlement and custody of tokenised assets. After exchange execution, transactions are settled gross and immediately. There is no clearing by a central counterparty of the transactions to be settled. Furthermore, owing to the close linkage of trading and settlement, stock exchange transactions only become legally binding once the central securities depository has fully settled them from existing stocks of the participants. The SDX offering is aimed at supervised financial institutions. (From the Annual Report 2021)