When it comes to crypto investments, many Swiss private banks have simply jumped on the bandwagon without understanding the evolution of the new industry, BCB Group’s chief banking officer Mike Hofer, said in an interview with finews.com.
Mr. Hofer, Switzerland is considered blockchain-friendly. What makes it particularly attractive as a location for crypto companies?
When it comes to crypto tokens, the Swiss Financial Market Supervisory Authority (Finma) distinguishes between three types and is guided by the principle of technology neutrality, which is attractive to crypto companies as it enables innovation.
Finma regulated the industry clearly and reliably early on, which is why BCB Group set up shop in Switzerland. It also so happened that the Neuchâtel Economic Development Agency was actively looking for blockchain companies.
What exactly does BCB Group do?
We operate a crypto trading desk for institutional clients and we have a payment services license in England, where we offer accounts for payment transactions. A business field that is developing rapidly.
«Meanwhile, BCB moves a total of 100 billion francs per year»
Now we are coming to Switzerland with this line of business as well. We are in the process of applying for a fintech license.
What clientele does your company target?
With a clear market positioning, we target crypto companies or crypto exchanges such as Bitstamp and Crypto.com. We enable the flow of money originating from the crypto industry. In Switzerland, we appreciate the secure framework and to be able to operate in the regulatory environment here. Meanwhile, BCB moves a total of about 100 billion Swiss francs per year.
Why haven't Swiss banks moved more into the crypto business?
Many Swiss private banks have simply jumped on the bandwagon, without understanding the development behind the new asset class. Unfortunately, many lack the professional and technological know-how.
«I doubt whether Swiss private banking can really convince today's crypto clientele»
On the client side, if you are confronted with, say, a 25-year-old crypto-nerd who brings 50 million francs through crypto trading, it is important to check where exactly the money comes from in order to understand the origin of funds. This takes a lot of time and extensive crypto compliance expertise.
Do they struggle with the crypto business?
Not only that. I also doubt whether Swiss private banking, as it is, can really appeal to and convince today's crypto clientele. Many investors in digital assets want a decentralized financial system without traditional banks.
Are traditional banks in danger of being left behind by neo-banks here?
In the crypto space, no. Unfortunately, no Swiss neobank has a successful business model yet. Neon, for example, is not directly a bank. But if you use Neon, the funds are held by a Swiss bank (Hypothekarbank Lenzburg) and are only available to Swiss residents.
«Unfortunately, no Swiss neobank has a successful business model yet»
Yapeal is considered a fully digital Swiss mobile bank and is currently in the process of restructuring and realigning its organization. In the end, everyone wants to copy Revolut. However, Revolut is not a bank, but a fintech company.
Does that mean that the path is clear for established traditional players?
Neobanks are a challenge because customers increasingly expect the freemium model. Crypto, however, will creep in everywhere at once, this evolution is starting, from crypto-denominated accounts to crypto-deposits. Not every crypto user wants to manage their own private keys. Private keys provide access to the corresponding cryptocurrencies.
Collapses like Terra-Luna and bankruptcies like Celsius have severely shaken confidence in the crypto industry. Almost everywhere, politicians and authorities are now calling for stricter regulations. Surely this should slow down the development of the crypto industry?
Watching countless US regulators outdo each in admonishing the industry is almost unbearable. The same thing is happening in Europe. Now finally we have the Markets in Crypto Assets draft rule, or MiCA for short, which finally provides a framework that ensures uniformity and is binding across the EU.
«It is almost unbearable to watch countless U.S. regulators outdo each in their admonishment of the industry»
The regulatory framework will better protect investors and preserve financial stability, while enabling innovation and promoting the attractiveness of the crypto industry. To me, this is a sign of progress, not restriction.
What does MiCA do particularly well?
Standardization. Standards and terms are clearly defined so that everyone understands the same thing. Roles are also clearly assigned. For the first time, a foundation has been laid that ensures a common regulatory framework. Its primary aim is to create a uniform approach across all 27 member states. In addition, MiCa will protect consumers from some of the risks associated with investing in cryptocurrencies and help them avoid fraudulent practices.
Why have stablecoins come under such fire?
Whether stablecoins need to be targeted as hard as MiCA has been doing is debatable. The collapse of Terra-Luna has probably contributed to this. Tether, on the other hand, has never been able to dispel doubts about sufficiently high and liquid reserves since its inception. In contrast, Circle's USDC, which is pegged to the dollar, is backed by highly liquid assets and is a prime example of stablecoins.
Will digital central bank money push stablecoins out of the market in the future?
Stablecoins will likely come under pressure once the first central bank digital currencies (CBDCs) emerge. Whether and how quickly this will happen depends entirely on how CBDCs are designed. If they come along almost the same as cash, just in an electronic form, anonymous, stable and unable to be switched off, then there probably won't be much of a use case left for stablecoins, except for special cases with smart features.
Why haven't the leading central banks launched CBDCs yet?
Launching digital central bank money is a big challenge, and the decision has far-reaching consequences. I welcome the fact that central banks are taking their time and carefully considering the consequences.
«Better late and right than hasty and potentially disastrous»
After all, with stablecoins we also have a substitute solution. So the central banks are not under time pressure. Better late and right than too hasty and potentially disastrous.
Back to MiCA. Does Finma have to make improvements now?
Regulation is an ongoing task, because technology is always evolving. For example, hardly anyone thought about decentralized financial markets (DeFi) a few years ago. There are always new developments, so we need to keep improving if we want to continue to push Switzerland as a crypto nation.
Does regulation strengthen the investment case for Bitcoin & Co?
Yes, because good regulation leads to legal and investment security. With stronger regulation, trust and ultimately the acceptance of crypto assets will increase.
The crypto winter is upon us. What do you expect from the market break?
This is not the first crypto winter to descend upon the industry. No one knows how harsh it will be. But the crypto industry will emerge stronger as it did last time.
«Now is the time when the Google of tomorrow, so to speak, is beginning to emerge in the crypto industry»
Weak companies and competitors like Celsius that had obvious design flaws are now being punished by the market and flushed out. The top players, on the other hand, are buying up and strengthening their business models. Now is the time when the Google of tomorrow, so to speak, is beginning to emerge in the crypto industry.
Mike Hofer is chief banking officer at BCB Group, a U.K.-based payment services provider for the digital asset industry that is also based in Switzerland. A native of Bern, he is one of the pioneers of crypto banking with some 30 years of experience in banking software. As a certified bank treasury and risk manager (BTRM) with an IT diploma, he has a wealth of experience in the banking industry, both in the Swiss fintech sector and beyond. Prior to joining BCB Group, Hofer held senior positions at FIS, Sungard and AxeTrading.
