Banking Bitcoin: Swiss Regulator Approves First Crypto Investment Fund, First Digital Asset Custodian

Banking Bitcoin: Swiss Regulator Approves First Crypto Investment Fund, First Digital Asset Custodian

Switzerland’s financial regulator has issued two approvals for a domestic cryptocurrency investment fund and a domestic digital asset custody service, just days after China’s central bank claimed that bitcoin and other financial blockchains are a threat to economic stability.

The Swiss Financial Market Supervisory Authority (FINMA) formally approved the Crypto Market Index Fund – the first investment fund of its kind in Switzerland – after careful consideration of its potential to “facilitate serious innovation … in a consistently technology-neutral way”.

In a related development, SEBA Bank, a Swiss bank specializing in digital assets, said the regulator has granted it a new CISA license to act as an institutional-grade “custodian bank for Swiss collective investment schemes”.

SEBA Bank chief executive Guido Buehler said the new license will enable Swiss mutual funds to give investors direct, liquid exposure to cryptocurrencies – something they could not previously do because of the stringent requirements placed on fund managers to oversee custody solutions.

“Institutional investors such as banks and insurance companies are now ready to invest in cryptoassets,” Buehler, a former senior executive at UBS, the Swiss investment bank, told me via email.

“They prefer to invest via a fund wrapper which has a higher standard in terms of security and regulation. There is institutional demand for crypto investment, but there was previously no custody bank solution available until now. With this missing gap being closed we expect demand to grow significantly.”

FINMA said the new Crypto Market Index Fund is solely authorized to invest in “established cryptoassets with a sufficiently large trading volume”. It will only be open to “qualified investors” and all activities by the fund must be executed via “established counterparties and platforms that are based in a member country of the Financial Action Task Force (FATF)” – the intergovernmental agency set up to combat money laundering.

SEBA’s digital wallet – which is already open to private and institutional clients outside of a fund wrapper – facilitates trading in 11 cryptocurrencies: bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Stellar (XLM), USD Coin (USDC), Bitcoin Cash (BCH), Synthetix (SNX), Uniswap (UNI), Yearn.Finance (YFI), Chainlink (LINK) and Aave (AAVE).

The bank allows clients to place their cryptoassets in cold storage – a form of custody that involves exporting private keys to hardware devices which are not connected to the internet and therefore cannot be hacked.

Devices are stored in a radio-frequency shielded Faraday Cage in a vault protected by multiple biometric access controls.

Switzerland has one of the largest banking sectors in the world, accounting for an estimated 25% of all global cross-border asset management. The country also has the highest proportion of millionaires anywhere on the planet, with 15% of its adult population worth more than $1m.

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