FINMA Sandbox: Innovation Space for DLT Startups
Introduction to the FINMA Sandbox
Switzerland’s Financial Market Supervisory Authority (FINMA) operates a graduated regulatory entry framework that has become a cornerstone of the Confederation’s strategy for nurturing distributed ledger technology innovation. The FINMA sandbox, introduced through amendments to the Banking Ordinance effective from 1 August 2017, allows companies to accept public deposits of up to CHF 1 million without requiring a banking licence, provided they do not invest or pay interest on those deposits.
This sandbox mechanism, combined with the fintech licence introduced in 2019, creates a structured pathway for DLT startups to develop, test, and scale innovative financial services within a defined regulatory perimeter. The framework reflects Switzerland’s recognition that overly burdensome licensing requirements at the earliest stages of business development can stifle innovation without delivering proportionate benefits to financial stability or consumer protection.
The Sandbox Exemption
Eligibility and Conditions
The sandbox exemption under Article 6(2) of the Banking Ordinance permits companies to accept deposits from the public without a banking licence, subject to the following conditions:
- Total deposits accepted must not exceed CHF 1 million at any time
- Deposits must not be invested and no interest may be paid on them
- Depositors must be informed before making deposits that the company is not supervised by FINMA and that deposits are not covered by the Swiss deposit protection scheme
- The company must not engage in the business of accepting deposits on a commercial basis if the deposits are used as working capital
For DLT startups, the sandbox exemption provides a legal basis for accepting limited customer funds in connection with digital asset services, payment token custody, or platform pre-funding arrangements without triggering full banking regulation. This enables early-stage companies to demonstrate commercial viability and develop compliant operational processes before committing to the costs and complexity of a full licence application.
Limitations of the Sandbox
The sandbox exemption is not a licence and does not confer supervised entity status. Companies operating within the sandbox are not authorised to conduct banking business, issue electronic money, or provide regulated financial services beyond the narrow scope of the exemption. Anti-money laundering obligations under the Swiss AML framework continue to apply, and sandbox participants must affiliate with a self-regulatory organisation (SRO) or submit to direct AMLA supervision.
The CHF 1 million deposit ceiling, whilst sufficient for proof-of-concept and early commercial operations, constrains the scalability of sandbox-based business models. DLT startups seeking to expand beyond this threshold must progress to the fintech licence or apply for a full banking or securities firm authorisation.
The Fintech Licence
Legislative Framework
The fintech licence, introduced through amendments to the Banking Act effective 1 January 2019, created a new authorisation category specifically designed for innovative financial technology companies, including DLT-focused firms. The fintech licence permits the acceptance of public deposits of up to CHF 100 million, subject to the condition that deposits are neither invested nor remunerated.
This intermediate licensing category bridges the gap between the sandbox exemption and full banking authorisation, providing a proportionate regulatory framework for companies that have outgrown the sandbox but do not yet require — or wish to obtain — a complete banking licence.
Authorisation Requirements
Applicants for the fintech licence must satisfy the following prudential requirements:
- Minimum capital: CHF 300,000 or 3% of total deposits accepted, whichever is higher
- Organisation: Adequate organisational structure with effective governance, internal controls, and risk management
- Fit and proper: Directors and senior management must meet fit-and-proper standards
- Domicile: The company must be domiciled and managed in Switzerland
- AML compliance: Full compliance with anti-money laundering obligations
- Audit: Appointment of an approved audit firm for regulatory audit purposes
Advantages for DLT Companies
The fintech licence offers several specific advantages for DLT-focused companies:
Reduced capital requirements — compared to a full banking licence, which requires minimum capital of CHF 10 million (for a cantonal bank) or higher risk-based capital, the fintech licence’s CHF 300,000 minimum is significantly more accessible for early-to-mid-stage DLT ventures.
Simplified prudential framework — fintech licensees are exempt from certain banking regulations, including liquidity requirements, large exposure limits, and detailed capital adequacy calculations, reducing the compliance burden on innovative companies with focused business models.
Regulatory credibility — unlike the sandbox exemption, the fintech licence confers supervised entity status, enabling DLT companies to establish banking relationships, engage with institutional counterparties, and demonstrate regulatory compliance to international partners and clients.
The Pathway from Sandbox to Full Licence
Graduated Approach
Switzerland’s graduated regulatory framework enables DLT companies to progress through increasingly comprehensive regulatory stages as their businesses mature:
- Sandbox exemption: Deposits up to CHF 1 million, no FINMA supervision, minimal regulatory burden
- Fintech licence: Deposits up to CHF 100 million, FINMA supervision, proportionate prudential requirements
- Full banking licence: Unlimited deposit-taking, full prudential framework, comprehensive FINMA supervision
- DLT trading facility licence: Multilateral trading of DLT securities, integrated post-trade services, as established under FinIA
This graduated pathway allows DLT startups to build regulatory expertise and compliance infrastructure incrementally, reducing the risk of premature over-regulation whilst ensuring that systemic protections scale with business growth.
Transition Considerations
Companies transitioning from the sandbox to the fintech licence or from the fintech licence to full authorisation must plan carefully for the operational, capital, and governance enhancements required at each stage. FINMA has indicated its willingness to engage in pre-application dialogues with DLT companies contemplating licence transitions, and the regulator’s Technology and Innovation division maintains specialist expertise in DLT-related licensing matters.
DLT-Specific Applications
Payment Token Services
The sandbox and fintech licence have been utilised by companies offering payment token custody, exchange, and transfer services. These companies accept customer funds in connection with cryptocurrency transactions, requiring a regulatory basis for deposit acceptance that the sandbox or fintech licence provides.
Tokenisation Platforms
Platforms facilitating the tokenisation and primary distribution of tokenised bonds, equity tokens, and other DLT-based financial instruments may utilise the sandbox or fintech licence for their deposit-taking functions, whilst separately addressing securities law requirements under FinSA.
DeFi Gateway Services
Emerging gateway services that connect traditional financial clients with decentralised finance protocols may utilise the fintech licence framework to provide regulated on-ramp and off-ramp services, enabling client fund acceptance within a supervised environment whilst facilitating access to DLT-native financial applications.
International Comparison
Switzerland’s sandbox and fintech licence framework is frequently cited as a model for other jurisdictions developing DLT-specific regulatory pathways. The United Kingdom’s FCA Regulatory Sandbox, Singapore’s MAS FinTech Regulatory Sandbox, and the Abu Dhabi Global Market’s RegLab programme share conceptual similarities with the Swiss approach, though each differs in scope, duration, and conditions.
The Swiss framework is distinguished by its permanence — unlike time-limited sandbox programmes in other jurisdictions, the Swiss sandbox exemption and fintech licence are permanent regulatory categories that companies can utilise indefinitely, providing long-term certainty for business planning and investment decisions.
Compared to the EU MiCA framework, which does not include a sandbox mechanism at the EU level, Switzerland’s graduated approach offers greater flexibility for early-stage DLT companies, though MiCA’s passporting provisions provide market access advantages that the Swiss framework does not replicate.
Supervisory Observations
FINMA has published periodic observations on the operation of the sandbox and fintech licence, noting growing utilisation by DLT-focused companies and identifying areas where the framework’s practical application has required clarification. The regulator has emphasised the importance of robust AML compliance within the sandbox, adequate investor disclosures regarding the absence of deposit protection, and clear delineation between deposit-taking activities covered by the exemption and other regulated activities that require separate authorisation.
Outlook
The FINMA sandbox and fintech licence continue to serve as essential components of Switzerland’s DLT innovation ecosystem. As the sector matures and new business models emerge, the framework may be subject to recalibration — potentially including adjustments to deposit thresholds, expansion of permitted activities, or integration with emerging regulatory categories for DeFi protocols and decentralised autonomous organisations.
The success of Switzerland’s graduated regulatory approach is evidenced by the Confederation’s continued attraction of DLT-focused financial services companies from across the globe, reinforcing Zug’s position as a leading international hub for compliant distributed ledger technology innovation.
Donovan Vanderbilt is a contributing editor at ZUG DLT. This article is informational and does not constitute legal or financial advice.