The Swiss crypto scene hopes for a fillip from bitcoin hitting $10,000. As two crypto banks wrap their first year, dreary reality is setting in.
Last year, Finma became the first financial regulator to authorize crypto lenders – Sygnum and Seba. The move happened under not inconsiderable pressure from the government – specifically finance minister Ueli Maurer, who had continued predecessor Johann Schneider-Ammann's vocal backing of the nascent Swiss crypto industry.
One year later, reality has set in: development has been slow and uncertain, and in one case another fundraising round looms amid internal strife over strategy. Neither bank is sure how they are going to turn a profit. Meanwhile, traditional Swiss banks have become far more comfortable with crypto, and ironically represent a disruptive threat to the novice banks.
Finma Unease
Seba’s need to raise money after blowing through the better part of 100 million Swiss francs ($110 million) in its first two years is key for the wider Swiss crypto ecosystem. Finma is uneasy about Seba’s weighty Asian backing, according to two sources. The regulator wants the bank to ensure that as much as half of an upcoming funding round comes from Switzerland, they said.
The informal directive illustrates the wider political implications for Switzerland’s financial regulator, which effectively doesn’t want a Swiss bank controlled by Asian investors, one of the people said. Seba didn't comment.
Pressure From Bern
Finma in turn was under considerable informal pressure to approve them last fall, as two people familiar with the process described it. Though the regulator is overseen by parliament, finance minister Maurer was keen to make good on the «crypto nation» pledge of his predecessor – and let Finma know it.
A spokesman for Finma denied the regulator was subject to a nudge. «Finma grants banking licenses when the criteria for doing so are fulfilled. This was the case with both institutes,» the Bern-based regulator said in reference to Seba and Sygnum. The Swiss finance ministry declined to commented.
Practical Problems
Meanwhile, one year into their existence as regulated entities, Seba and Sygnum have run into a practical problem: neither are heavily stocked with bankers who understand the bread-and-butter of traditional finance, like lending. At Seba, traders grumbled about the onus of compliance screenings due to its banking status.
Seba didn’t actually need to be a bank to make money by ramping up trading volume, was their thinking. The strategy is at the heart of the dispute which led to Chairman Andreas Amschwand’s sudden departure last month, two people familiar with his exit said.
Amschwand, who ran UBS’ foreign exchange activities for 25 years, pushed for Seba to post revenue as soon as possible, mainly by trading. By contrast, a faction led by CEO Guido Buehler wants a universal bank, which also does crypto, these people said.
Trading Vs Universal Bank
Buehler, who is closer to potential investor money, won the upper hand. Amschwand didn't respond to a request for comment, and a spokeswoman for Seba didn't comment. To lend or push into tokenization – both balance sheet-intensive activities – Seba needs cash.
Julius Baer is among Seba’s investors, but looks unlikely to pony up again, according to several people familiar with the situation. The Swiss private bank has a series of homemade problems to solve, and little money to spare. Neither bank commented to finews.com.
Banks Lurking
By contrast, Sygnum quietly raised several million francs recently, according to two people. The bank is focused on delivering its strategic projects and winning clients, and will disclose details of its fundraising and new investors and partners in coming months, a Sygnum spokesman said.
«In addition to the 70 million francs-plus capital we have raised, considerably more has been invested by our strategic ecosystem partners,» Sygnum said. Last year, the bank took a broad stance, saying it would decide in three to five years on whether it would pitch to clients directly or become a gateway for traditional banks.
On Tuesday, it took a step in the latter direction, notching approval for a trading facility and hiving off its Singapore-based asset management arm. The trading push is a bid to tokenize and trade assets – an area that is traditional banks aren’t going to give up without a fight.
Waiting In The Wings
Big banks like UBS have «placing power» through their clients, which neither start-up bank has. UBS is hatching its own tokenization play, but is keeping shtum on where it stands specifically. The irony, of course, is the incumbent may well disrupt the fintech in this area.
Bitcoin Suisse, which is also vying for a banking license, is waiting in the wings. The crypto broker, which has been profitable for five of its seven years and in July hoovered up 45 million francs in funding, had hoped to be vetted by November.
Legacy Accounts
The odds are looking increasingly thin: The seven-year-old company had originally felt that having thousands of clients and processes in place would help fast-track the license. In fact, the opposite was true: Bitcoin Suisse is subject to deeper regulatory scrutiny due in part to so-called legacy accounts from the early days of its existence, according to two people familiar with the situation.
A Bitcoin Suisse spokesman said legacy clients or assets «is not a roadblock in any way as far as we are aware». The company noted that it operates a broader, more complex trading operation than Seba or Sygnum. «For this reason it is entirely understandable that the regulator would take its time to assess and understand things in detail,» Bitcoin Suisse said.
Swiss Crypto's Dark Horse
The pandemic outbreak in March didn't favor the process of winning a bank license, the company noted. Bitcoin Suisse stands out from the remainder of the crypto scene as hugely profitable, stocked with ex-big bankers (including co-founder Niklas Nikolajsen), and plans for a public listing.
Switzerland's dark horse, according to crypto observers, is Incore, which wraps transactions for a consortium of wealth managers. The Zurich-based company teamed with U.S. exchange Kraken as well as home-grown trading app Honesto two months ago – and has ample reach with the wealthy thanks to its private bank clients.
