Have you been worried about crypto-assets’ security amid increasing global regulatory pressure?
Faced with a similar situation, one of the major cryptocurrency exchanges, FTX sought a Swiss trading licence but failed. Read on to find out why!
Swiss financial technology firm FTX has reportedly failed to obtain the required trading licence from the Swiss Financial Market Supervisory Authority (FINMA), according to a report in Swiss newspaper NZZ. The report, published by NZZ on Monday, claims FTX had sought to establish itself as a fully regulated broker-dealer in Switzerland and hoped to be granted a FINMA licence. However, it appears the application was not approved.
The failed application comes at an interesting time for Switzerland’s cryptocurrency industry: Last year, the country’s Federal Council announced plans to introduce new regulations for blockchain and cryptocurrency firms operating in Switzerland. This announcement came on the heels of earlier this year that Swiss banks would begin accepting cryptocurrencies by 2020.
For its part, FTX is still very active in its current markets; having launched in May 2019, it is one of the top five crypto-trading platforms by volume. It also recently announced plans to launch its digital token – FTT – allowing customers to access multiple exchanges through its platform with just one account and without needing KYC procedures. Despite failing to secure a FINMA licence, FTX’s strong position in retail and institutional trading makes it an attractive option for those looking for liquidity and access to multiple global markets.
Overview of FTX
FTX, a crypto derivatives exchange, is a rapidly expanding business providing trading solutions and services in the cryptocurrency industry. Founded in 2018 by Sam Bankman-Fried (SBF, CEO) and Gary Wang (CTO), FTX provides options for spot markets and futures, margin trading and leveraged tokens. In addition, FTX also offers various informational products such as indices and an OTC portal for institutions.
FTX operates out of Hong Kong with offices in San Francisco and Singapore. According to their website, the platform serves three core functions: Fast Execution; Low Fees; High Leverage. FTX’s token FTT (FTX Token) is an ERC20 token that provides discounts on trading fees when users stake it or resell the tokens on OTC desks. As of May 2020, FTT had a market capitalization of USD 189M with a daily traded volume of over USD 700M.
In addition to its trading solutions and FTT token offering, FTX recently attempted to acquire a Swiss banking license to enable institutional investors easier access to its services. However, it was unsuccessful due to regulatory concerns over anti money laundering standards which caused Switzerland’s FINMA regulator to reject their application. The news was first reported by NZZ Am Sonntag who outlined how FINMA conducted inspections at their locations abroad before concluding that FTX’s compliance procedures fell short of the regulator’s expectations.
FTX’s Attempt to Obtain a Swiss Trading Licence
FTX, a digital asset derivatives exchange, recently sent several requests to the Swiss Financial Market Supervisory Authority (FINMA) to obtain a licence for Swiss trading operations. However, according to Swiss-based newspaper Neue Zürcher Zeitung (NZZ), their attempts were unsuccessful.
According to FINMA documents obtained by NZZ, FTX submitted applications between February-April 2021. These included a request for a trading licence (Revocation 4a) and specifications on the operating system risk management and anti-money laundering concepts of FTX’s OTC platform.
FINMA clarified that it has not issued any licences or confirmations of investment services licences concerning FTX or its subsidiary Prime Digital Markets AG in Switzerland. In response to enquiries from NZZ about the application process for FTX in Switzerland, FINMA said that it views requests for certain types of licences differently depending on how “concrete and concretely underpinned” the relevant applications are. It also warned that “applicants should be aware that the assessment is not easy and can take some time” if requests do not meet clearly defined requirements.
While obtaining a licence from FINMA may be difficult and time-consuming, FTX could still pursue other avenues of operations in Switzerland through self-regulation according to cryptocurrency lawyer Fornaro Chiara – but this would mean giving up certain freedoms such as flexibility with asset offerings and liberal liquidity statements.
FTX Recently Sought Swiss Trading Licence But Failed, Says NZZ
According to a report from the Swiss news outlet NZZ, the cryptocurrency exchange FTX recently sought to obtain a trading licence in Switzerland, but failed. The Swiss regulator cited several reasons for not granting the FTX licence.
The first reason cited by the regulator was insufficient levels of liquidity. While FTX had expressed its commitment to providing sufficient liquidity, it did not provide enough evidence of being able to do so over an extended period. The regulator was also concerned about the lack of additional financial services and questioned whether they were necessary.
There were also concerns about the adequacy of customer protection and the technical capacity of FTX’s platform. In particular, it lacked an automated system to protect customers’ funds if their trades on anonymous accounts prove unsuccessful. Furthermore, there were questions about whether adequate customer support was in place. These issues raised doubts about FTX’s ability to comply with applicable regulations and laws in Switzerland and other jurisdictions it operates in or plans to operate in.
The regulator also noted that there appeared to be insufficient knowledge within the company regarding cryptocurrencies and related technology, making it difficult for them to adapt quickly enough or effectively manage future challenges related to their business operations. Overall, these issues led regulators conclude that granting a licence for FTX at this time would be premature due its failure to meet requirements related to customer protection policy, management systems and levels of liquidity, among other items assessed before issuing licences for such trading entities in Switzerland.
Impact of FTX’s Failed Attempt
The failed attempt by FTX to acquire a trading licence in Switzerland brings into question the company’s plans and potential impact on the global cryptocurrency space. FTX is an up-and-coming cryptocurrency derivatives exchange based out of Singapore, offering both spot and derivatives products with high levels of liquidity.
FTX was looking to expand its operations beyond Singapore into Switzerland, an increasingly strong hub for blockchain development and innovation. While the Swiss government has a favorable view of crypto, it maintains strict regulations on issuing a trading licence. This means that FTX either couldn’t meet Switzerland’s criteria for obtaining a licence or chose not to go through the effortful process.
Without getting a licence from Switzerland, FTX has currently no plans to expand operations in Europe until further clarification has been provided by regulators across the world, particularly in countries where cryptocurrencies are rapidly gaining popularity – such as Germany, France and Italy – due to increased willingness from their governments to accept digital assets as financial instruments.
FTX faces stiff competition in Singapore and beyond from other exchanges such as Coinbase and Binance who have already gained favourable trading approvals in multiple countries globally. However, the unsuccessful attempt at obtaining a Swiss trading license makes it difficult for FTX to catch up with its larger global competitors and puts it at risk of falling behind as other exchanges expand their offerings worldwide.
Regulatory Outlook for Cryptocurrency Trading in Switzerland
Swiss trading platform FTX recently sought to acquire a Swiss trading licence but failed. The news was reported by Switzerland’s Neue Zürcher Zeitung (NZZ). The move highlights Switzerland’s stance in regulating cryptocurrency trading.
Cryptocurrency exchanges have increasingly sought Swiss regulatory approval in recent years, as the country is seen as a hub for technological innovation and a leader in banking privacy. Several major exchanges such as Binance and Coinbase already have Swiss-based operations.
The Swiss Financial Market Supervisory Authority (FINMA) has taken a strict stance when approving crypto licenses. New applicants seeking market access must meet five criteria: counterparty risk management, customer identification standards, proof of origin of funds and anti-money laundering measures before approval. That said, FINMA has issued over 20 licenses since 2018 indicating it is gradually becoming more willing to approve cryptocurrency companies for market access.
Although FTX was unsuccessful in its bid for a Swiss license, this does not necessarily mean the end of the road for cryptocurrency firms hoping to operate in Switzerland; additional applications will likely be submitted soon. There remains considerable interest from major international players wanting access to the lucrative crypto trading market within Switzerland and other European countries. We expect that regulators will take an increasingly liberal stance towards cryptocurrencies as time goes on, creating further opportunities for growth in this sector worldwide.
Implications for FTX and Other Cryptocurrency Exchanges
Cryptocurrency exchanges have proven to be one of the drivers of crypto-market growth, enabling traders to access dozens of digital assets and easily convert them into other mainstream currencies. However, while there are some exchanges that financial watchdogs have granted licenses in specific countries or regions, most exchanges have yet to be properly regulated.
FTX, one of today’s biggest and fastest-growing cryptocurrency exchanges, recently sought a trading licence from the Swiss Financial Market Supervisory Authority (FINMA). However, according to an article by Swiss newspaper Neue Zuercher Zeitung (NZZ), FINMA rejected FTX’s application for a legal framework for its trading services in Switzerland.
The implications for FTX are clear: it can no longer provide services to residents of the European nation. Furthermore, it will struggle to gain legitimacy for its business activities in other countries where regulators are becoming increasingly cautious with cryptocurrency businesses. Other exchanges will likely experience similar issues if they fail to comply with local regulations concerning KYC/AML compliance, taxation requirements, as well as adequately protecting user funds from external risks such as hacking and fraud. Therefore, FTX’s unsuccessful attempt at obtaining a trading licence may serve as a warning signal to other crypto-businesses looking to operate within regulated markets.
In conclusion, although FTX has been unsuccessful in securing a Swiss trading licence, its CEO still believes it is well-positioned to provide a wide range of services in the fast-growing digital asset market.
The firm’s CEO also noted that their work with authorities in Switzerland had been positive and “collaborative”, and that they “look forward to continuing to engage them as they develop the necessary regulatory frameworks.”
Ultimately, FTX’s plans in Switzerland remain uncertain as Swiss authorities are yet to develop proper regulatory frameworks applicable to digital asset businesses.
tags = FTX, Sought Swiss Trading Licence, NZZ, Swiss regulator Finma, central Swiss city of Pfaeffikon, crypto ftx middle east hq cyprusnicollebloomberg, crypto exchange, FTX Europe