Focus on Crypto-Assets: New FINMA Requirements for Asset Managers

Clear words from FINMA

Cryptobased assets falling under an individual asset management mandate need to be held in custody separately for each client at a bank, a securities firm, a DLT trading facility or another institution subject to supervision equivalent to that in Switzerland. Within the EEA, the FINMA considers the MiCAR to constitute a regulatory basis for an appropriate custody environment for cryptobased assets. Foreign custodians licensed under MiCAR are therefore subject to equivalent supervision.

Foreign custodians must also hold bankruptcy protection equivalent to that available under Swiss law. Therefore, the key issue is not only a provider’s technical functionality, but rather the existence of a supervised custody structure with solid infrastructure, expertise and legal protection in the event of insolvency.

FINMA also states that any non-compliant custody structures need to be adjusted, while any exceptions will still be limited.

What this means for asset managers with crypto strategies

The upshot of this for licensed Swiss asset managers involved in crypto is that existing structures will need to be reviewed. This affects not only asset management mandates but also investment products with crypto exposure that are structured via foreign vehicles. Asset managers are responsible for ensuring that custody is carefully structured and is legally robust also in these cases.

Relevance for AMC and ETP structures

Custody of the underlying assets will be a core pillar of the regulatory product architecture specifically for AMCs and ETPs with crypto strategies.

This accordingly raises a question for asset managers as to whether existing connections to crypto trading platforms will still be sufficient or whether more heavily regulated custody models will be required in the future. One thing is already clear today: anyone structuring crypto products needs a partner that can bring together custody, regulation and operational implementation.

Regulatory clarity increases pressure to act and creates opportunities

The Guidance will lead to higher auditing costs, but also provides some direction. The market is clearly shifting towards regulated custody solutions with robust infrastructure and a legal framework. This makes the choice of the right partner strategically more important.

There will be demand for setups offering more than isolated individual services. Those who adopt regulated solutions at an early stage will reduce dependence on unregulated third parties and create a stabler basis for future growth.

Bank Frick as a regulated alternative from Liechtenstein

This is exactly where Bank Frick comes in. As a universal bank in Liechtenstein holding a MiCAR licence and with a focus on professional clients, Bank Frick has been combining classic banking services with regulated blockchain banking solutions since 2018.

This is particularly relevant for asset managers as Bank Frick offers much more than custody services in isolation. The bank provides a regulated foundation on which entire crypto strategies and investment strategies can be built up – also in view of the steadily increasing regulation in Switzerland and the EEA.

Moreover, as a matter of Liechtenstein law, crypto assets held in custody can be segregated from the custodian’s estate in bankruptcy (Article 25 of the Liechtenstein Token and TT Service Provider Act).

A one-stop shop for AMCs and ETPs

Bank Frick offers an integrated, one-stop solution for crypto AMCs and ETPs. Depending upon the structure, these may include amongst other things its own issue vehicle, a paying agent, price calculation, trading as well as the custody of traditional and digital assets.

This means that asset managers can set up product structures through a partner that has not only major expertise in the field of digital assets but also the necessary regulatory substance.

The added value provided by this expertise is particularly evident in particular for more complex structures. These include for example public offerings in the EEA, stock exchange listings or setups under which Bank Frick involves a regulated broker for direct trading or the custody of assets.

Bank Frick xPULSE as an operational lever

This setup is complemented by the Bank Frick xPULSE network. This links up leading exchanges, market makers and liquidity providers and enables fiat currencies to be transferred on crypto exchanges 24/7 with settlement within seconds rather than days.

This is more than simply a matter of convenience for asset managers and issuers. Anyone operating crypto strategies or product-based solutions requires not only secure custody but also fast and robust processes for funding, settlement and trading connectivity. As such, Bank Frick xPULSE offers an operational benefit significant for everyday operations.

Conclusion

FINMA has made it clear that custody has finally become a core regulatory issue for crypto strategies. Regulated, insolvency-proof and operationally robust structures are absolutely essential for asset managers setting up or managing AMCs or ETPs with digital assets.

Those working with a regulated partner with technical know how and integrated product expertise not only reduce risks but also create the basis for developing crypto strategies sustainably over the long term. It is precisely with this aim in mind that Bank Frick offers a setup combining regulatory certainty with operational practicability.