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LT-04032019-Switzerland – an innovative country faced with the global blockchain challenge
Switzerland – an innovative country faced with the global blockchain challenge
Patrick Odier
Senior Managing Partner
Spotlight column in Le Temps
Blockchain is becoming increasingly important, both globally and in Switzerland. The technology is expected to transform the value chain in capital markets and the way participants trade and hold securities. This in turn improves the efficiency and speed at which underlying processes are carried out as well as reducing costs and associated risks. So it's hard to argue that it won't win out. Even the Swiss stock exchange acknowledged its forthcoming impact in its white paper "The future of the securities value chain" published in February 2019.
Blockchain is becoming increasingly important, both globally and in Switzerland.
The rise of blockchain is a symbol of how new technologies are changing the world. It is crucial for companies to grasp the importance of certain technological advances and anticipate the impact these will have on their business models.
Like any rising technology, blockchain now has to be industrialised. With the exception of cryptocurrencies, so far adoption in the financial sector has been relatively limited. But the investments made by several Swiss and international institutional players indicate a genuine transformation in the world of finance.
Securities, stocks and assets traded in the form of tokens will be able to be settled in (almost) real time. "Smart contracts" will make it possible to automate some processes and transactions depending on conditions and specific foreseeable events, such as corporate actions. Blockchain is not going to create a parallel banking system; it will transform the infrastructure of the financial markets of tomorrow.
Blockchain is not going to create a parallel banking system; it will transform the infrastructure of the financial markets of tomorrow.
Switzerland is well positioned in this global technology race. Our country could become a leading hub for the development of new technologies such as blockchain, as it is based on four fundamental elements: solid financial institutions, a constructive and balanced regulatory environment, a tradition of innovation and a strong talent pool.
Supporting reputation and trust
The Swiss financial centre has always lived up to its responsibilities of financing the economy and protecting savings, even at the height of the 2008 crisis. In the current geopolitical environment, the solidity of Swiss banks, which are among the best capitalised in the world, is a genuine competitive advantage. The banking sector has also resolved (sometimes painful) legacy tax issues so it can move into the future with confidence.
Despite the efforts already made, we still need to work on improving the competitiveness of the Swiss financial centre. In other words, we can't just rest on our laurels – the competition is global. It is therefore important to be able to enjoy regulation that protects investors and the integrity of the financial centre, as well as providing favourable conditions for companies and innovation.
…we can't just rest on our laurels – the competition is global.
The Swiss authorities have taken a proactive approach over the last two years. The fintech report from the Federal Council in November 2016 allowed the introduction of a new category of banking licence, the "fintech licence", which came into effect at the start of this year. In December, the Federal Council also published an influential report into the legal framework for distributed ledger technology and blockchain in Switzerland.
Our authorities have rarely shown such determination in their desire to encourage the development of expertise at both national and international level in order to create the conditions for Swiss champions to emerge. But time is pressing and competition is fierce.
But time is pressing and competition is fierce.
The role of Switzerland and Geneva
It is crucial to strengthen the relationships between private and public-sector players (political and regulatory authorities, banks, technology companies and the academic world) to draw up agendas that promote common interests, ensure top-flight training and stimulate the innovative capacity and technical expertise that has always been Switzerland's strong point. Specifically, four areas need to be studied:
At the international level, Switzerland has to take the initiative to ensure global blockchain standards are adopted early, making use of its proximity to international and non-governmental organisations based in Geneva.
It would also be wise to ensure a steady pace is kept up in the evolution of the regulatory process in Switzerland. The recommendations and suggestions in the Federal Council report of 14 December 2018 should be implemented rapidly.
Our regulator FINMA also needs to be able to pick out high-quality projects rapidly and issue them licences within a reasonable time frame – here too, competition is global and talent is highly mobile. Other regulators have put rules in place which guarantee a rapid turnaround of completed applications.
Finally, in terms of financing, our most promising start-ups find it hard to raise significant amounts of capital. The recent creation of a CHF 500 million investment fund to support innovative SMEs promised by the Federal Council is a reassuring sign. It would indeed be a shame if our stars were bought out by international giants or shifted their activities abroad.
The role of Geneva
The region has everything needed to develop industrial applications based on blockchain that go well beyond cryptocurrencies. The Lake Geneva region boasts cutting-edge skills in financial services, technology and regulation, demonstrated by the participants in the first Geneva Annual Blockchain Congress held at the end of January.
The region has everything needed to develop industrial applications based on blockchain that go well beyond cryptocurrencies.
Traditional financial assets and digital assets will only come together if the highest institutional standards are applied across all levels of the value chain. Switzerland and Geneva have a major part to play.
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter "Lombard Odier"). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document.
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