Switzerland's DLT Act vs EU's DLT Pilot Regime: A Practitioner's Comparison

Switzerland’s DLT Act and the European Union’s DLT Pilot Regime represent two distinct legislative approaches to enabling tokenised securities markets. Both were enacted within two years of each other (Switzerland in 2021, EU in 2023), both have attracted significant institutional attention, and both aim to facilitate the issuance and trading of securities on distributed ledger technology. Yet the two frameworks differ fundamentally in design philosophy, regulatory permanence, and practical consequences for issuers and investors. This analysis provides the practitioner-level comparison that institutional decision-makers require when choosing between the two regimes.

Switzerland’s DLT Act (2021): The Three-Pillar Approach

Switzerland’s Federal Act on the Adaptation of Federal Law to Developments in Distributed Ledger Technology — colloquially the Swiss DLT Act — entered into force on 1 August 2021. The Act did not create a new regulatory framework from scratch; instead, it amended existing Swiss private law and financial market law in three targeted areas, creating the legislative foundation for DLT-based financial markets within Switzerland’s existing regulatory architecture.

Pillar 1: The Registerwertrecht (Ledger-Based Right)

The centrepiece of the Swiss DLT Act is the Registerwertrecht — a new category of property right under Swiss civil law (Code of Obligations, Article 973d et seq.). The Registerwertrecht is a security or claim that exists exclusively in the form of an entry in a register (the DLT ledger) rather than as a physical instrument or book-entry in a traditional CSD.

Key characteristics:

• Legal perfection on the ledger: transfer of a Registerwertrecht is legally effective upon recording on the register, without requiring a separate novation or physical delivery. This is a fundamental reform: Swiss securities transfer law previously required either physical delivery or transfer in a traditional book-entry system.
• Register requirements: the register must be structured so that only the registered holder can dispose of the right; the registration process must be technically and organisationally secure; and the register must be resistant to manipulation.
• Broad applicability: Registerwertrechte can represent bonds, structured products, fund units, and equity securities (shares), provided the issuer satisfies the relevant conditions for each security type.
• No mandatory central intermediary: a Registerwertrecht does not require an SDX CSD account or Taurus EXPLORER; an issuer can in principle create a register on any qualifying DLT system, including a system the issuer operates itself. This is significantly more permissive than the EU DLT Pilot Regime’s venue requirements.

The Registerwertrecht is Switzerland’s most consequential contribution to global tokenisation law because it provides a clear, permanent private law foundation for DLT securities that does not depend on regulatory approval for each transaction.

Pillar 2: The DLT Trading Facility

The second pillar of the Swiss DLT Act created a new category of financial market infrastructure: the DLT trading facility (DLT-Handelssystem). This licence category — issued by FINMA — allows an operator to combine functions that traditional regulation separates:

• Exchange functions (organised trading, order matching, price discovery)
• CSD functions (creation, primary custody, and transfer of securities)
• Potentially settlement functions

The combination of exchange and CSD functions in a single regulated entity is prohibited under EU regulation (MiFID II/CSDR separation principle), which is why the EU’s DLT Pilot Regime created a special exemption regime to allow DLT TSS (trading and settlement system) combinations under the Pilot. Switzerland’s DLT Act made this combination a permanent regulatory option.

SDX is the first and currently only holder of a FINMA DLT trading facility licence. The licence has no sunset clause, no volume cap, and no exemption structure — it is equivalent in permanence to a traditional exchange or CSD licence.

Pillar 3: Insolvency Protection

The third pillar addressed the treatment of crypto assets and tokenised assets in bankruptcy proceedings. Under pre-DLT-Act Swiss insolvency law, digital assets held by an insolvent intermediary could be treated as general creditor claims rather than being segregable for return to their beneficial owners. The DLT Act amended the Swiss Debt Enforcement and Bankruptcy Act (SchKG) to provide that:

• Crypto assets held by an insolvent custodian for clients are segregable (not part of the bankruptcy estate)
• Clients can claim their crypto/tokenised assets in preference to general creditors

This insolvency protection is essential for institutional adoption: no regulated bank can hold tokenised assets for clients if those assets risk being swept into a counterparty’s bankruptcy estate.

The EU DLT Pilot Regime: Regulation 2022/858

The EU’s DLT Pilot Regime (Regulation (EU) 2022/858, applicable from 23 March 2023) is a 6-year experimental framework allowing DLT-based market infrastructures to operate in the EU with temporary exemptions from certain provisions of MiFID II, CSDR, and the Settlement Finality Directive. Unlike Switzerland’s DLT Act, the DLT Pilot Regime is explicitly temporary and experimental — it is a regulatory sandbox with an expiry date.

The Three Pilot Infrastructure Categories

The DLT Pilot Regime creates three categories of authorised DLT market infrastructure:

DLT MTF (Multilateral Trading Facility): a DLT-based trading system that qualifies as an MTF under MiFID II, with specific exemptions from MiFID II provisions incompatible with DLT operation (e.g., requirements for interoperability with traditional settlement systems). A DLT MTF can trade DLT financial instruments but cannot perform CSD functions.

DLT SS (Settlement System): a DLT-based securities settlement system qualifying as an CSD under CSDR, with exemptions from CSDR provisions that presuppose traditional technology. A DLT SS can create and settle DLT financial instruments but cannot perform organised trading.

DLT TSS (Trading and Settlement System): the most significant category, combining DLT MTF and DLT SS functions in a single entity — analogous to what SDX does under its Swiss DLT trading facility licence. The DLT TSS is the EU’s answer to the combination of exchange and CSD that Switzerland’s DLT Act permits directly.

Volume Caps: The Critical Constraint

The DLT Pilot Regime imposes aggregate volume caps on each DLT market infrastructure operator:

• Market capitalisation limit: the DLT financial instruments admitted to trading or recorded on a single DLT market infrastructure may not exceed EUR 6 billion in aggregate market capitalisation.
• Number of financial instruments: no explicit numerical cap, but the EUR 6 billion market cap limit effectively constrains the universe.

The EUR 6 billion cap was intended to limit systemic risk during the pilot phase. In practice, it means that no single EU DLT Pilot infrastructure can become systemically significant, which simultaneously reduces risk and limits business model viability. For context, a single SDX bond issuance (UBS CHF 375m in 2022) represents approximately 6% of a DLT Pilot infrastructure’s entire permitted volume.

The caps are scheduled for review in 2027 when the Pilot Regime is assessed, with the possibility of extension, modification, or replacement by permanent legislation.

Sunset Provision: The Fundamental Uncertainty

The DLT Pilot Regime expires 6 years after its effective date (23 March 2023), meaning it lapses in March 2029 unless the EU legislates a permanent replacement. This sunset creates fundamental uncertainty for infrastructure operators who must:

• Build expensive technical and regulatory infrastructure to operate a DLT market venue
• Onboard participants who face switching costs if the venue cannot continue post-2029
• Attract issuer commitments for multi-year securities programmes

No rational institutional investor will rely on a DLT Pilot infrastructure for multi-year securities holdings if the legal basis for that infrastructure might not exist in five years. This is the DLT Pilot Regime’s deepest structural weakness for building lasting market infrastructure.

Practical Comparison: Issuers Choosing Between Swiss DLT Act and EU DLT Pilot

For a Debt Issuer

A European bank or corporate seeking to issue a tokenised bond faces the following choice matrix:

Issuing under Swiss DLT Act (as Registerwertrecht on SDX or Taurus EXPLORER):

• Advantages: permanent legal basis; CBDC settlement available via Project Helvetia; no volume caps; FINMA-supervised infrastructure; Swiss franc denomination possible for international reserve currency bonds
• Disadvantages: not automatically recognised as a security under EU law (MiFID II); potential EU investor access limitations; requires Swiss law issuance documentation in addition to any EU prospectus requirements
• Best for: Swiss franc-denominated bonds; issuers with Swiss institutional investor targets; issuers prioritising legal permanence over EU distribution

Issuing under EU DLT Pilot Regime (on a DLT TSS or DLT SS):

• Advantages: MiFID II-compatible DLT financial instruments; EU Prospectus Regulation compliance enables EU-wide distribution; potentially passportable to all EU member states
• Disadvantages: EUR 6 billion volume cap per venue constrains market development; 2029 sunset creates legal basis uncertainty; no live CBDC settlement; fewer operational venues to choose from (as of 2025, very few DLT Pilot authorisations are live)
• Best for: EUR-denominated bonds targeting EU institutional investors; issuers who need EU Prospectus Regulation compliance for broad EU distribution

For DLT Exchange Operators

Swiss DLT trading facility licence (FINMA):

• Permanent; no volume caps; combined exchange-CSD permitted; Swiss financial market infrastructure regulatory standards apply
• Requires Swiss nexus; FINMA’s regulatory standards are high but clear

EU DLT Pilot Regime authorisation (NCAs, typically home state regulator):

• Temporary (2029 sunset); EUR 6 billion cap; combined DLT TSS permitted; regulatory standards vary by national competent authority
• EU passport potential; can serve EU-27 issuers and investors

The Recognition Gap: Swiss Tokenised Securities in the EU

The most consequential practical issue in the Swiss DLT Act vs EU DLT Pilot comparison is the lack of automatic mutual recognition. A Registerwertrecht issued under Swiss DLT Act is a Swiss security governed by Swiss private law. It is not automatically recognised as a financial instrument under MiFID II, which means:

• EU investment firms cannot trade Swiss Registerwertrechte without FINMA equivalence decisions or bilateral agreements, because MiFID II requires that financial instruments traded on EU venues meet specific definitional requirements
• EU collective investment undertakings (UCITS, AIFs) face AIFMD/UCITS restrictions on holding Swiss Registerwertrechte depending on interpretation of the “eligible assets” provisions
• EU institutional investors subject to MiFID II best execution obligations may face compliance questions when trading on SDX if SDX is not recognised as an equivalent trading venue

Switzerland’s non-EU status means that SDX does not benefit from the automatic regulatory recognition that, for example, a German D7 digital bond would receive when traded by an EU investment firm. This is the most significant structural disadvantage of Switzerland’s DLT framework relative to EU alternatives for issuers seeking broad European institutional distribution.

Cross-Border: Can a Swiss Registerwertrecht List on an EU DLT Pilot Exchange?

This question is technically complex and legally uncertain. The short answer is that a Swiss Registerwertrecht is not automatically a “DLT financial instrument” within the scope of the EU DLT Pilot Regime, because the definition of DLT financial instruments in Regulation 2022/858 requires that the instrument be a financial instrument within the scope of MiFID II — which Swiss Registerwertrechte may not satisfy without additional legal opinion and potentially regulatory guidance.

There is a theoretical pathway: an issuer could structure a transaction as a dual-registration, where a bond is simultaneously a Registerwertrecht under Swiss law and a dematerialised bond (or electronic security) under an EU member state’s law that qualifies as a MiFID II financial instrument. This dual structure would be expensive and legally complex but not impossible.

The Liechtenstein Option: Token Act as EEA Bridge

The Principality of Liechtenstein offers a significant bridge between Switzerland’s DLT Act framework and EU/EEA regulatory recognition. Liechtenstein’s Token and TT Service Provider Act (TVTG, in force since January 2020 — predating both the Swiss DLT Act and EU DLT Pilot Regime) created a comprehensive legal framework for tokens and token service providers under Liechtenstein law.

The strategic value of Liechtenstein’s TVTG for Swiss-adjacent tokenisation is its EEA membership: Liechtenstein is an EEA member (European Economic Area) through the EFTA agreement, which means Liechtenstein-regulated entities can potentially passport financial services into EU member states. A tokenised security structured and issued under Liechtenstein’s TVTG framework — combined with an EU Prospectus Regulation-compliant prospectus approved by Liechtenstein’s FMA (Finanzmarktaufsicht) — could in principle be passported into EU member states, providing EU distribution access that a purely Swiss Registerwertrecht lacks.

This Liechtenstein bridge has attracted attention from practitioners seeking to combine Swiss infrastructure quality with EU distribution reach, but it is structurally complex and has not yet been demonstrated at scale.

Timeline Comparison

Practical Decision Guide for Issuers

Choose Swiss DLT Act if:

• Your target investors are Swiss institutional (pension funds, insurers, cantonal banks)
• You are issuing in Swiss francs
• You want legal permanence and no sunset risk
• CBDC settlement quality matters for your investor base
• Your bond programme is large enough that EUR 6 billion venue caps would be constraining

Choose EU DLT Pilot Regime if:

• Your target investors are EU institutional, requiring MiFID II-compliant instruments
• You are issuing in EUR and targeting EU-wide distribution via EU Prospectus Regulation passporting
• Your transaction size is within EUR 6 billion venue cap
• You are comfortable with regulatory risk that the Pilot may not be extended beyond 2029

Consider both (dual structure) if:

• You want to reach both Swiss and EU institutional investors with a single issuance
• You are prepared to absorb the additional legal and operational costs of dual registration
• Your legal advisers can navigate the overlap between Swiss Registerwertrecht and EU DLT financial instrument definitions

The Swiss DLT Act and EU DLT Pilot Regime are complementary rather than competing frameworks — each serves a distinct geographic and investor universe. The long-term question is whether the EU will enact permanent DLT securities legislation after 2027 that matches Switzerland’s regulatory permanence. Until then, Switzerland leads on stability; the EU leads on distribution reach.

Published by ZUG DLT — Donovan Vanderbilt. zugdlt.com provides independent institutional intelligence on Switzerland’s distributed ledger technology ecosystem.