The Swiss government is poised to take an official position on the country's burgeoning blockchain industry. The start-up scene shouldn't expect to lean on Bern too much. 

It was «an odd situation» for Switzerland's top finance diplomat: officials in Bern aren't used to finance begging more regulation, Joerg Gasser said at a blockchain conferenz in Bern on Monday.

In two weeks, the State Secretariat for International Financial Matters, or SIF, led by Gasser is due to present the results of a working group launched in January at a cryptocurrency conference in St. Moritz.

The keenly-awaited paper is expected to lay the ground rules for a crypto and blockchain industry which has grown by leaps and bounds, including in Zug, or so-called crypto valley.

«Market Decides»

Digital asset providers are awaiting guidance from Bern about how tokens underpinned by blockchain technology will be treated. Gasser signalled that official Switzerland won't interfere with the technology, nor actively promote the industry as rival finance hubs including Singapore have done.

«The market has to decide where blockchain leads,» the diplomat, who is due to leave government in two months, told the conference. Neither start-ups nor traditional finance firms have made a breakthrough. In finance, this isn't expected until established players – institutional investors, banks, insurers – jump into blockchain technology with both feet.

«Not without my bank», as finews.com put it last month, noting that until blockchain and crypto firms without a money bridge to institutional investors which would secure the liquidity won't reach the masses.

Backing in Principal

The start-up scene is of course aware of this, as recent efforts such as an investor-friendly crypto Swiss franc – XCHF – show. Other prominent figures like Niklas Nikolajsen are even more explicit: the Bitcoin Suisse founder said recently that government should usher their (often state-backed) cantonal banks towards crypto business.

Switzerland is making clear it won't be the deux ex machina helper which paves the way for blockchain in Switzerland. Instead, the SIF and other agencies including financial regulator Finma, and the wider finance department are pursuing a principal-based regulation as opposed to a rules-based approach.

Switzerland won't draft blockchain legislation like Liechtenstein has, Gasser emphasized. His boss, finance minister Ueli Maurer, has been enormously welcoming of fintech firms, including with an on-site visit in Zug and an official visit to South America with bankers and finance start-up entrepreneurs four months ago.

No Draft Legislation

Instead of a specific blockchain or crypto legal framework, Switzerland plans to tweak existing law to allow for the new technology and its financial applications, the two said. The government expects to propose changes to six laws, including civil code and bankruptcy law next year.

Maurer, who has traveled extensively with Swiss bankers, made clear that he is aware of the competition facing Switzerland. «London is already further advanced than we are, and centers like Singapore and Shanghai are fierce competitors,» he said. In Europe, Liechtenstein is in the lead – with the exception of Monday, when government head Adrian Hasler was snagged in traffic on his way to the Bern conference.

Squandered Opportunity?

Switzerland is full of examples of local government backing for blockchain: Zug's government accepts digital currency for many administrative services. Zurich supports a blockchain hub – Trust Square – in the midst of the city's banking sector, and a federal technology body supported a now-defunct blockchain project.

The alpine nation's hands-off approach may mean it squanders an opportunity in the race to build the world's leading blockchain center. Switzerland's reluctance to dive into the next financial market adventure following years of trouble over tax evasion and money laundering is understandable (and commendable). 

«We have to be careful that we don't build up another risk bubble, which later bursts,» Gasser said. Finma has already shut down more than one sham token provider.