Swiss DeFi Regulation: Current Framework

Introduction to Swiss DeFi Regulation

Decentralised finance — the ecosystem of financial applications built on distributed ledger infrastructure that seeks to replicate, extend, or replace traditional financial services through autonomous smart contract protocols — presents fundamental challenges to regulatory frameworks designed around identifiable financial intermediaries. Switzerland, as a leading jurisdiction for DLT innovation, has been at the forefront of confronting these challenges, applying its established regulatory principles to DeFi activities whilst acknowledging the significant conceptual and practical complexities involved.

As of 2026, Switzerland does not have DeFi-specific legislation. The regulatory treatment of DeFi protocols and participants is determined through the application of existing financial market laws — including the Financial Services Act (FinSA), the Financial Institutions Act (FinIA), the Banking Act, the Anti-Money Laundering Act, and the Financial Market Infrastructure Act — supplemented by FINMA guidance and supervisory practice. This approach is consistent with Switzerland’s broader technology-neutral regulatory philosophy, though the decentralised nature of DeFi protocols creates unique interpretive challenges that existing frameworks were not designed to address.

FINMA’s Analytical Framework

Substance Over Form

FINMA has consistently applied a substance-over-form analysis to DeFi activities, assessing the economic function and operational reality of DeFi protocols rather than their technical architecture or promotional characterisation. A protocol described as “fully decentralised” may nonetheless trigger regulatory obligations if identifiable persons or entities exercise meaningful control over its operations, governance, or funds.

Key factors in FINMA’s assessment include:

• Governance control: Whether identifiable persons or entities control protocol parameters, upgrades, or fee structures through governance mechanisms, admin keys, or multisignature arrangements
• Fund management: Whether any party exercises custody or control over user assets deposited in the protocol
• Financial intermediation: Whether the protocol’s operation constitutes the professional provision of financial services, such as exchange, lending, or asset management
• Token issuance: Whether the protocol issues tokens that constitute financial instruments, payment tokens, or securities under Swiss law

The Decentralisation Spectrum

FINMA recognises that DeFi protocols exist on a spectrum of decentralisation, from centralised platforms with DeFi branding to genuinely autonomous smart contract systems without identifiable operators. The regulatory implications differ significantly along this spectrum:

Centralised DeFi: Protocols operated by identifiable companies or foundations, with admin keys, upgradeable smart contracts, and centralised governance, are treated similarly to traditional financial service providers. The operating entity is subject to applicable licensing, conduct, and AML obligations.

Partially decentralised DeFi: Protocols with distributed governance but identifiable core teams, foundation entities, or significant token holders may trigger regulatory obligations for those parties exercising effective control, even if protocol operation is partially automated.

Fully decentralised DeFi: Protocols operating autonomously through immutable smart contracts, without identifiable operators or governance participants exercising control, present the greatest regulatory challenge. Where no identifiable financial intermediary exists, the application of intermediary-focused regulation becomes problematic, and alternative regulatory approaches may be necessary.

Application of Existing Regulatory Categories

Banking Regulation

DeFi lending protocols that accept deposits from users may trigger banking licence requirements under the Banking Act if the acceptance of funds constitutes deposit-taking. The critical question is whether a protocol — or its operators — can be deemed to “accept” deposits in the legal sense. Where an identifiable entity controls the protocol and user funds flow through addresses under that entity’s control, banking regulation may apply. Where funds are deposited directly into autonomous smart contracts without intermediary control, the traditional deposit-taking analysis becomes less applicable.

DeFi borrowing activities raise separate questions regarding the characterisation of protocol-issued loans. If a protocol or its operators extend credit to users, consumer credit and banking regulations may be engaged.

Securities Regulation

DeFi tokens that confer economic rights — including governance tokens with revenue-sharing mechanisms, liquidity pool tokens representing proportional claims on pooled assets, and yield-bearing tokens — may constitute securities or financial instruments under Swiss law. Their issuance and distribution would then be subject to FinSA prospectus requirements, unless applicable exemptions apply.

FINMA’s assessment focuses on the economic substance of token rights rather than their technical implementation. A governance token marketed as a “utility token” but conferring de facto profit-participation rights may be reclassified as a security, with retroactive compliance implications for the issuer.

Collective Investment Scheme Regulation

DeFi protocols that pool user assets for collective management — including yield aggregators, automated portfolio managers, and certain liquidity pool structures — may constitute collective investment schemes under the Collective Investment Schemes Act (CISA). The key criteria are whether assets are managed for the account of investors and whether investors share in the risk and return of the pooled assets.

If a DeFi protocol meets the CISA definition, its operation without appropriate authorisation constitutes a regulatory breach. The protocol operator — or the entity exercising control over the protocol — would be subject to licensing requirements and investor protection obligations.

Financial Market Infrastructure Regulation

Decentralised exchanges (DEXs) that facilitate the multilateral matching of buy and sell orders for financial instruments may constitute trading venues under the Financial Market Infrastructure Act (FinMIA). The DLT trading facility licence, introduced through the DLT Act, provides a regulatory pathway for DLT-based trading platforms, but its application to fully decentralised, autonomous AMM-based exchanges (such as those explored in Project Mariana) raises significant questions about the identifiability of the licensed operator.

AML Challenges in DeFi

The Intermediary Gap

Switzerland’s AML framework, like those of most jurisdictions, predicated its obligations on identifiable financial intermediaries. DeFi protocols that operate without identifiable intermediaries create a structural gap in AML coverage, as there is no party upon which to impose customer due diligence, transaction monitoring, and reporting obligations.

FINMA has addressed this gap partially by focusing on the parties that do interact with DeFi protocols as identifiable intermediaries — including on-ramp and off-ramp service providers, wallet providers facilitating DeFi access, and entities operating governance or administrative functions for nominally decentralised protocols. These parties may be subject to AML obligations in connection with their DeFi-related activities.

Travel Rule Compliance

The application of the travel rule to DeFi transactions is particularly challenging. Transfers to and from DeFi protocol smart contract addresses do not fit neatly within the travel rule’s originator-beneficiary framework, as the counterparty to a DeFi transaction is typically a smart contract rather than an identifiable natural or legal person.

Swiss financial intermediaries processing transactions with DeFi protocols must assess whether the protocol interaction constitutes a transfer to an unhosted wallet (the smart contract address) and apply appropriate risk-based due diligence measures accordingly.

Regulatory Developments and Industry Dialogue

FINMA Engagement

FINMA has engaged in ongoing dialogue with the Swiss DeFi industry, participating in roundtable discussions, publishing research papers, and conducting supervisory assessments of DeFi-related activities. The regulator’s approach has been characterised by openness to understanding DeFi innovations whilst maintaining firm expectations regarding compliance with applicable regulatory requirements.

Swiss Blockchain Federation Contributions

The Swiss Blockchain Federation has published position papers and regulatory recommendations addressing DeFi regulation, advocating for a risk-based, activity-focused approach that applies regulatory obligations to identifiable participants in DeFi ecosystems without attempting to regulate autonomous smart contract code. The Federation’s contributions have informed both FINMA’s supervisory approach and broader legislative discussions.

International Coordination

Switzerland participates in international DeFi regulatory discussions through the Financial Stability Board, the International Organization of Securities Commissions (IOSCO), and the FATF. These multilateral forums have published analytical frameworks and policy recommendations for DeFi regulation that inform Switzerland’s domestic approach, including IOSCO’s 2023 recommendations on DeFi and the FATF’s updated guidance on virtual assets.

Emerging Regulatory Approaches

Activity-Based Regulation

A growing consensus in Switzerland and internationally favours activity-based regulation as the most promising approach to DeFi oversight. Rather than seeking to identify and regulate DeFi protocol operators (who may be absent or unidentifiable), activity-based regulation would impose obligations on specific activities — such as exchange, lending, or custody — regardless of the technological means through which they are conducted.

Embedded Compliance

The concept of embedded compliance — incorporating regulatory requirements directly into DLT protocol design through programmable compliance mechanisms — has gained attention as a potential solution for DeFi regulation. Smart contracts could be designed to enforce KYC requirements through self-sovereign identity systems, implement transaction monitoring through on-chain analytics integration, and restrict access to sanctioned addresses through automated screening.

Outlook

Swiss DeFi regulation is at an inflection point, with increasing pressure from international standard-setters, domestic supervisory experience, and market developments driving the evolution of the regulatory framework. Key questions that will shape the future include whether Switzerland will enact DeFi-specific legislation or continue to apply existing frameworks through supervisory interpretation, how AML obligations will be extended to genuinely decentralised protocols, and whether embedded compliance technologies can bridge the gap between DeFi innovation and regulatory expectations.

The resolution of these questions will be critical to Switzerland’s continued competitiveness as a DeFi hub and to the broader objective of integrating decentralised financial innovation within a framework that protects financial stability and prevents illicit use.

Donovan Vanderbilt is a contributing editor at ZUG DLT. This article is informational and does not constitute legal or financial advice.