Swiss FinIA: Financial Institutions Act Overview

Introduction to FinIA

Switzerland’s Financial Institutions Act (Finanzinstitutsgesetz, FinIA), effective since 1 January 2020, established a unified prudential supervisory framework for financial institutions operating outside the banking sector. Alongside the Financial Services Act (FinSA), FinIA represents one of the two pillars of Switzerland’s modernised financial market regulation, replacing a fragmented landscape of sector-specific prudential rules with a coherent, graduated licensing architecture.

For Switzerland’s distributed ledger technology ecosystem, FinIA is of particular significance because it defines the organisational, capital, and governance requirements for institutions that manage, custody, or trade DLT-based financial instruments. The Act’s proportional approach — scaling regulatory obligations to the nature, size, and complexity of each institution — has been instrumental in accommodating innovative DLT business models within the Swiss regulatory perimeter.

Institutional Categories Under FinIA

Asset Managers

FinIA introduces a licensing requirement for asset managers of individual client assets and asset managers of collective investment schemes. DLT-focused asset managers — including those managing portfolios comprising tokenised securities, digital assets, or DLT-based fund units — must obtain a FinIA licence and comply with ongoing prudential obligations including minimum capital requirements, organisational standards, and risk management frameworks.

The licensing threshold captures firms providing discretionary portfolio management services involving DLT-based instruments, regardless of the underlying technology used to execute or settle transactions. Asset managers operating below de minimis thresholds may benefit from transitional provisions, though these have largely expired following the extended transition period that concluded in 2022.

Fund Management Companies

Fund management companies administering collective investment schemes are subject to enhanced FinIA requirements, including higher capital thresholds, stricter governance standards, and comprehensive risk management obligations. Where collective investment schemes invest in DLT-based assets or issue tokenised fund units, the fund management company must ensure that its operational infrastructure, custody arrangements, and valuation methodologies appropriately address the characteristics of distributed ledger-based instruments.

Securities Firms

FinIA consolidates the regulation of securities dealers (now termed securities firms) under a single prudential framework. Securities firms engaged in the trading, market-making, or underwriting of DLT-based securities must satisfy FinIA’s enhanced capital, liquidity, and organisational requirements. This category is particularly relevant for firms operating on or providing access to the SIX Digital Exchange (SDX) and other DLT-based trading venues.

Trustees

The regulation of trustees under FinIA captures entities administering assets or structures for the benefit of third parties. In the DLT context, this may include entities providing trustee services for tokenised asset structures, decentralised autonomous organisations with fiduciary arrangements, or trust-based custody solutions for digital assets.

The DLT Trading Facility Licence

Legislative Innovation

One of the most significant additions to FinIA came through the DLT Act amendments of 2021, which introduced the DLT trading facility licence as a new authorisation category under Article 73a et seq. of the Financial Market Infrastructure Act (FinMIA), with corresponding prudential requirements incorporated into the FinIA framework.

The DLT trading facility licence enables regulated multilateral trading of DLT securities, with the novel feature that non-regulated participants — including retail investors — may be admitted to the platform under defined conditions. This regulatory innovation was specifically designed to accommodate the disintermediated nature of DLT-based trading whilst maintaining appropriate investor protection and market integrity safeguards.

Authorisation Requirements

Applicants for a DLT trading facility licence must demonstrate compliance with a comprehensive set of prudential requirements, including:

• Minimum capital of CHF 1 million or risk-based capital, whichever is higher
• Adequate organisational structure with clear governance responsibilities
• Robust risk management and internal control frameworks
• Appropriate technology infrastructure, including cybersecurity measures
• Procedures for the admission, suspension, and delisting of DLT securities
• Client asset segregation and custody arrangements
• Anti-money laundering compliance in accordance with Swiss AML requirements

Operational Scope

DLT trading facility operators may integrate functions that are traditionally separated in conventional market infrastructure, including trading, clearing, settlement, and custody. This vertical integration model reflects the operational efficiencies enabled by distributed ledger technology, where atomic settlement and on-chain custody can reduce counterparty risk and operational complexity.

However, operators must ensure that the integration of multiple functions does not create conflicts of interest or undermine the integrity of individual operational processes. FINMA assesses each application on its merits, considering the specific risks arising from the combined provision of trading and post-trade services.

Capital and Organisational Requirements

Graduated Capital Thresholds

FinIA implements a graduated capital framework that scales minimum capital requirements to the type and risk profile of each institutional category:

• Asset managers of individual assets: CHF 100,000 minimum capital
• Asset managers of collective investment schemes: CHF 200,000 minimum capital
• Fund management companies: CHF 1 million minimum capital
• Securities firms: Risk-based capital requirements aligned with Basel standards

For DLT-focused institutions, FINMA may impose additional capital requirements to address technology-specific operational risks, including smart contract risk, key management risk, and protocol governance risk. The regulator applies a proportional approach, ensuring that capital requirements reflect the actual risk profile of each institution’s DLT activities.

Governance and Organisation

FinIA mandates that regulated institutions maintain adequate organisational structures, including effective board oversight, qualified senior management, independent compliance and risk management functions, and appropriate internal audit arrangements. DLT-focused institutions must demonstrate that their governance frameworks address the specific challenges of distributed ledger operations, including technology governance, protocol upgrade decision-making, and incident response procedures.

Custody of DLT-Based Assets

Segregation Requirements

One of FinIA’s most consequential provisions for the DLT sector concerns the custody and segregation of client assets. Financial institutions holding DLT-based assets on behalf of clients must ensure adequate segregation between proprietary and client holdings, maintain accurate records of client entitlements, and implement operational procedures that protect client assets in the event of the institution’s insolvency.

The DLT Act amendments clarified the insolvency treatment of crypto-based assets held in collective custody, establishing that such assets may be segregated from the custodian’s insolvency estate where proper allocation records are maintained. This legal certainty was a critical prerequisite for institutional participation in Switzerland’s DLT ecosystem.

Technology Standards

FINMA expects regulated custodians of DLT-based assets to implement industry-leading security measures, including multi-signature arrangements, hardware security modules, geographic distribution of key material, and regular security audits. The regulator’s technology-neutral approach does not prescribe specific technical solutions but requires institutions to demonstrate that their custody arrangements provide a level of security commensurate with the value and nature of the assets under custody.

Interaction with Other Regulatory Frameworks

Banking Act

The Banking Act (Bankengesetz) continues to govern prudential supervision of banks, including those offering DLT-related services within their banking licence. FinIA’s institutional categories complement rather than replace banking regulation, with the result that banks may conduct DLT activities under their existing licence whilst non-bank institutions must obtain appropriate FinIA authorisation.

Financial Market Infrastructure Act

The Financial Market Infrastructure Act (FinMIA) governs market infrastructure entities, including stock exchanges, central counterparties, and central securities depositories. The DLT trading facility licence, whilst housed within FinMIA, draws upon FinIA’s prudential principles for its capital, governance, and organisational requirements. The interaction between FinMIA and FinIA creates a comprehensive regulatory framework for DLT-based market infrastructure.

Anti-Money Laundering

FinIA-regulated institutions are subject to Switzerland’s anti-money laundering framework, which requires customer due diligence, transaction monitoring, and suspicious activity reporting. The application of AML obligations to DLT-focused institutions presents specific challenges relating to pseudonymous transactions, cross-chain transfers, and the identification of beneficial owners in decentralised structures.

FINMA Supervisory Approach

FINMA’s supervisory practice under FinIA has been characterised by active engagement with the DLT sector, proportional application of prudential requirements, and willingness to accommodate innovative business models within the regulatory framework. The regulator has conducted supervisory dialogues with numerous DLT-focused institutions, provided pre-application guidance, and published interpretive communications clarifying the application of FinIA requirements to novel DLT use cases.

The FINMA sandbox and fintech licence categories provide graduated entry points for DLT startups that do not yet meet full FinIA licensing requirements, enabling a phased approach to regulatory compliance that supports innovation whilst maintaining appropriate supervisory oversight.

Outlook

FinIA’s prudential framework will continue to evolve in response to technological developments and market dynamics in the DLT sector. Key areas of anticipated regulatory development include the treatment of decentralised autonomous organisations under FinIA’s institutional categories, the prudential framework for staking and validator operations, and the integration of DLT-based risk management tools into regulatory reporting and compliance processes.

Switzerland’s proportional, technology-neutral approach under FinIA has established a robust foundation for the continued development of regulated DLT financial services, positioning the Confederation at the forefront of institutional digital asset adoption.

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