Â鶹´«Ã½ÔÚÏß

"Good regulation promotes innovation"

Tina Balzli
Partner at CMS von Erlach Partners

 

The DLT Act enables asset managers to tokenise securities on the blockchain and came into force over four years ago. However, a wave of tokenisation has yet to materialise. Why is this?

Since the beginning of February 2021, the DLT Act has permitted the issuance of registered securities in accordance with Art. 973d ff. OR (i.e. securities on the blockchain) and, since the beginning of August 2021, the operation of DLT trading systems as a new financial market infrastructure. However, the legal basis alone does not constitute a functioning market. The subdued momentum can be explained primarily by the lack of a consistent infrastructure across the primary and secondary markets. Integration into existing CSD and custody landscapes is complex and continues to require time and capital. At the same time, the number of active participants is still too low, meaning that no network effects are emerging in secondary trading and price formation may remain inefficient. Asset owners expect demonstrable improvements in costs, liquidity and access, rather than tokenisation as an end in itself.

It was only this year that FINMA approved a DLT trading system. The innovation process seems to be progressing slowly. Is this misleading?

This impression is only partially misleading. In March 2025, FINMA approved the first DLT trading system, ‘BX Digital’. This approval covers the trading and settlement of transactions with DLT securities, thus closing one of the gaps that had previously prevented the network effects mentioned above from occurring in the secondary market. Back in 2021, companies in the SIX Group had already been given the green light as a stock exchange and central securities depository for digital assets, but not under the new category of DLT trading system. This shows a gradual expansion of the market infrastructure within a cautious regulatory framework. Whether this will result in noticeable market breadth now depends on specific listings, active market makers, the connection of custodian banks and other processes.

What advantages does the tokenisation of securities offer asset managers and investors?

Asset managers can potentially achieve significant efficiency gains through leaner issuance processes, more precise digital record keeping and programmable corporate actions throughout the entire life cycle of an instrument. In addition, there are potentially new product forms, such as fractionalised holdings in private markets, as well as the possibility of end-to-end processes from subscription to custody with a higher degree of automation. In the long term, the costs for transfer agents and settlement will decrease, and counterparty risks will be reduced through delivery versus payment in a single step. The regulatory framework for DLT securities and the corresponding infrastructures is in place and supports standardisation, interoperability and audit-proof traceability for compliance and reporting. Investors benefit from faster and more predictable settlements, greater transparency of ownership and broader access to previously difficult-to-access or illiquid investments. Lower minimum amounts facilitate diversification, and better data availability improves pricing and portfolio reporting. However, these advantages will only come into full effect once bankable, end-to-end end-customer processes are established, sufficient secondary market liquidity is available, and custodian banks, brokers and market makers are connected.

Is crypto regulation in Switzerland really too restrictive and complex, as critics claim?

Swiss crypto regulation aims to be technology-neutral and principle-based. This may be true in principle and may also facilitate its applicability within the legal system, including with regard to future innovations. Nevertheless, certain regulatory shortcomings have become apparent, particularly in connection with the so-called fintech licence, which may also be relevant in connection with crypto assets, and with the issuance of stablecoins. Corresponding legislative amendments are now being proposed in the consultation on amendments to the Financial Institutions Act (payment institutions and crypto institutions), which will run until 6 February 2026. In addition to replacing the fintech licence with a licence for payment institutions with specific changes to improve attractiveness and customer protection, a new licence is also being proposed for crypto institutions that provide various services involving cryptocurrencies. However, the main problem for the Swiss crypto market remains the widespread lack of direct access to the EU market, a deficit that cannot be remedied by national legislative dynamics alone.

Which countries and markets are ahead of Switzerland in terms of regulation?

As already mentioned, Switzerland was relatively early to the game with its DLT Act, for example in civil law (registered securities) and financial market infrastructure law (DLT trading systems). Liechtenstein scores points with its Act on Tokens and Trusted Technology Service Providers (TVTG) and the token container model it contains. The EU has harmonised regulation in the area of crypto assets with the Markets in Crypto-Assets Regulation (MiCAR) and is testing the trading and settlement of transactions with crypto assets under the so-called DLT pilot regime. The United Kingdom has so far focused in particular on sandbox approaches. Singapore is tightening the rules for digital payment tokens and is driving forward the development of tokenised funds with its ‘Project Guardian’. Switzerland will remain competitive, especially if the new financial market infrastructures can be scaled in terms of both participants and products.

In asset management, the focus is currently more on the tokenisation of investment funds. Where does the greatest potential lie?

In the short term, the potential lies primarily in increasing process efficiency through digital subscription and redemption of shares, on-chain registers and correspondingly less coordination effort. In addition, there are tokenised fund shares with digital transfer agents, automated corporate actions, more efficient onboarding and KYC, as well as money market-related, tokenised settlement assets (cash leg) in corresponding financial market infrastructures. In the medium term, additional benefits will arise from an interoperable on-chain operating model in which settlement, registration and reporting are based on a verifiable database. This will enable new distribution and liquidity channels, such as NAV-close settlement of suitable vehicles, tokenised feeder structures for private markets and automated distributions. International initiatives such as Project Guardian demonstrate the target architecture for comprehensive fund lifecycle automation.

Technological innovations and regulation: these are two terms that often don't go well together. Why did you choose this field?

I find this tension very exciting, both personally and professionally. Good regulation, which includes the pragmatic application of existing laws to new situations, does not slow down innovation, but ideally promotes it through legal certainty.

Artificial intelligence has overtaken blockchain as a mega topic. Will the two technologies complement each other in asset management?

I am convinced that both technologies will develop in a complementary manner. AI can efficiently evaluate on-chain data and automatically perform KYC and AML checks, pricing and NAV controls. DLT can store data in a tamper-proof manner and automatically execute rules, for example for corporate actions and compliance checks. Pilot programmes abroad are already demonstrating the automation of subscriptions and redemptions via interoperable rails. The combination of AI and blockchain will prevail when responsibilities, data sources and controls are clearly regulated.

What prospects do you see for Swiss asset management in view of the technological arms race?

From a Swiss perspective, the technological arms race primarily offers opportunities for implementation. The legal framework is basically in place in Switzerland, although FINMA practice still needs to be adapted in some areas. In the short term, subscriptions and redemptions can be digitised, register keeping can be made more precise, corporate actions can be automated and onboarding/KYC can be streamlined. Money market-related settlement assets reduce settlement risks. In the medium term, next-generation fund operations can be created by running settlement, registration and reporting on a verifiable database. AI takes over recurring checks such as pricing checks, NAV controls and anomaly detection, while DLT keeps the event chain tamper-proof and makes rules programmable. As a leader in innovation, Switzerland has what it takes to be at the forefront if it begins to implement these measures consistently in practice.