In Part 2 of the analysis of play-to-earn games, I will discuss the legal situation with regard to the Swiss Banking Act (BankG), the Swiss Anti-Money Laundering Act (GwG), and the Swiss Financial Market Infrastructure Act (FMIG).
In Part 1, I concluded that none of the tokens used in the Axie Infinity ecosystem (AXS, SLP, and Axie NFT) should be considered asset tokens within the meaning of FINMA’s ICO guidelines. Rather, they are hybrid tokens that exhibit the characteristics of both payment and utility tokens.
Certain crypto-based custody services may require a banking license in Switzerland.
The primary purpose of the Banking Act is to protect the public, particularly bank creditors and their deposits. Liabilities of a debt nature (e.g., promises to repay capital with a guaranteed return) are treated as deposits and, in accordance with the Banking Act, require a banking license or a fintech license, unless exceptions apply.
Payment tokens held with a wallet provider/operator may be considered money-like deposits in the form of legal tender (cash or book money) if three conditions are met. First, the token holder cannot transfer their payment tokens at any time without the involvement of the wallet provider or operator; second, the wallet provider has an obligation to redeem the tokens for the token holder; and third, in the event of the wallet provider’s or operator’s bankruptcy, the payment tokens become part of the provider’s or operator’s bankruptcy estate.
Furthermore, pursuant to Art. 1b, para. 1, letter a of the Banking Act (BankG), in conjunction with Art. 5a of the Banking Ordinance (BankV), a FinTech license is required if crypto-based assets (payment tokens) are held in collective custody and can be excluded from the bankruptcy estate.
Sky Mavis offers only non-custodial wallets and has no authority to transfer token holders' private keys. Therefore, the Banking Act does not apply in this case.
The Anti-Money Laundering Act (AMLA) generally applies to so-called financial intermediaries that, on a commercial basis, receive or hold third-party assets or assist in investing or transferring them. In particular, the AMLA applies to persons who provide payment services. The AMLA applies to persons operating in Switzerland or abroad.
The issuance of a payment token is subject to the Anti-Money Laundering Act (AMLA). Consequently, the issuer must comply with the provisions of the AMLA and join a self-regulatory organization (SRO).
The recently revised Anti-Money Laundering Act (AMLA) Ordinance (AMLO) is relevant for the application of the AMLA to blockchain developers. The GwV stipulates that individuals who assist in transferring virtual currencies (i.e., payment tokens) to a third party are subject to the GwG if they maintain a long-term business relationship with the contracting party or if they exercise control over virtual currencies on behalf of the contracting party.
Consequently, blockchain providers must comply with the Anti-Money Laundering Act (GwG) and join a self-regulatory organization (SRO) if they maintain a long-term contractual relationship with token holders. For example, if they offer a non-custodial wallet on a long-term basis.
By contrast, providers of non-custodial wallets that only provide a one-time software license and do not maintain an ongoing relationship are not subject to the Anti-Money Laundering Act (GwG).
AML obligations include identifying the contracting party, identifying the beneficial owner, identifying and monitoring high-risk relationships and transactions, and reporting suspicious activity to the authorities. The specific scope of these obligations must be assessed based on the project’s circumstances. Of course, many of these tasks can also be outsourced to third-party providers.
Given the ability to fulfill these obligations entirely online and the availability of blockchain-specific compliance tools, these obligations can be met in most cases.
In any case, the GwG applies to operators of online gambling.
If Sky Mavis were based in Switzerland, it would be subject to the Anti-Money Laundering Act (GwG). Sky Mavis maintains an ongoing relationship with users in the form of a game account, which is required to access the platform. In addition, Sky Mavis operates a marketplace for trading in-game NFTs, which is accessible only through a web-based application provided by Sky Mavis. Users need a Ronin wallet and a MetaMask wallet to buy and sell Axie NFTs on this marketplace.
Consequently, the players and the beneficial owner of the funds transferred into the Axie Infinity ecosystem would need to be identified. In addition, business relationships and transactions would need to be monitored. Finally, membership in an SRO would be required.
The Swiss Financial Market Infrastructure Act (FinfraG) contains provisions governing stock exchanges, multilateral and organized trading systems, central securities depositories, central counterparties, and payment systems. However, only those platforms that offer services related to securities, financial instruments, or payment systems are subject to the FinfraG.
Since the marketplace only facilitates trading in NFTs, which are unique and do not constitute securities or financial instruments, the FMIA does not apply.
As far as financial market laws are concerned, Sky Mavis, as the developer of Axie Infinity, would not be required to apply for a financial market license in Switzerland. If Sky Mavis were operating in Switzerland, it would have to comply with the Anti-Money Laundering Act (AMLA) and join a self-regulatory organization (SRO).
However, since the penalties for operating an unlicensed business are severe, a careful analysis of each play-to-earn game is crucial. In most cases, however, the Anti-Money Laundering Act (AMLA) must be observed, and SRO membership is required.
Do you have any questions about this topic, or would you like a personal consultation? Write to us—we’re happy to help.
