Switzerland wants to keep the crypto crown

Swiss regulators are stepping up efforts to halt an exodus of cryptocurrency projects from the country, after two of only a handful of banks active in the nascent sector shut their doors on it in the last year.

The departures, which industry sources fear will continue, mean Switzerland is losing business to offshore rivals including Liechtenstein, Gibraltar and the Cayman Islands, where banks are more welcoming.

While crypto-related business in Switzerland is tiny compared with its traditional banking sector, it has grown rapidly and employs hundreds of people, according to local officials. Supporters also consider it a key innovation for the future of global finance.

The wealthy Swiss canton of Zug, for example, has been dubbed “Crypto Valley”, with 200-300 virtual currency entities opening there in recent years. Zug’s finance director, Heinz Taennler, says they may leave if the government does not take steps to give them access to the banking system, without which they struggle to function. “All their banking relationships are going to Liechtenstein,” he told Reuters. “These are hundreds of jobs that have been created, and every job is important.”

Thomas Moser, an alternate member of the governing board at the Swiss National Bank (SNB), said some cryptocurrency companies had asked the central to intervene. “They raised concerns about problems with opening bank accounts, which was a worry for them, and asked for help,” Moser told Reuters. “I said this was not something the SNB dealt with, but they should speak with FINMA.

The risk of fraud and lack of transparency about who owns cryptocurrencies like bitcoin and ether have made regulators around the world wary. The United States is among countries that are increasing scrutiny of the sector.

Swiss banks are urging the authorities to give them more clarity on the rules that apply to cryptocurrency projects before providing services to the market, and at least two important players have withdrawn for now.

Zuercher Kantonalbank (ZKB), the fourth largest Swiss bank and one of the few big banks in the world to welcome issuers of cryptocurrencies, has closed the accounts of more than 20 companies in the last year, industry sources told Reuters.

Only a handful of Switzerland’s 250 banks ever allowed companies to deposit the cash equivalent of cryptocurrencies raised in ICOs. At least two still do, Reuters has established. But the involvement of a large bank like ZKB helped to establish Switzerland as an early cryptocurrency hub.

Swiss banks are worried because some companies that carried out ICOs did not do anti-money laundering (AML) checks on their contributors, industry sources said. This means the banks themselves could fall foul of AML rules.

Despite the challenges, Switzerland is working on new rules to reassure banks and encourage them to accept the accounts of cryptocurrency companies. The country has dropped from second place in 2017 to sixth this year in a country ranking of the sum of ICO funds raised, according to a study published by PwC and the Crypto Valley Association in June. The Cayman Islands and British Virgin Islands topped the list.

Switzerland’s authorities have said they want to create conditions for the country to remain competitive but with no room for scams or financial crime. The finance ministry is also looking at the broader legal framework for blockchain technology and ICOs.

Its findings will be presented to the federal government by the end of the year and will determine how the technology fits into existing Swiss laws and regulations