Switzerland's DLT Act: How Crypto Valley Built the World's First Blockchain Legal Framework

When the Swiss Federal Act on the Adaptation of Federal Law to Developments in Distributed Ledger Technology entered into full force in August 2021, it completed a legislative process that had begun with the Federal Council’s 2018 report on the legal framework for blockchain and distributed ledger technology. The Act — universally referred to as the DLT Act — amended nine existing federal laws rather than creating a new one, embedding blockchain-compatible legal concepts into the core of Swiss financial, corporate, and insolvency law. The approach was characteristically Swiss: precise, comprehensive, and executed without fanfare.

The result was the world’s most complete legal framework for tokenized assets — one that gave Switzerland a structural advantage in attracting tokenization businesses that no other major jurisdiction had come close to replicating by the time the Act came into force.

Legislative Genesis: The 2018 Federal Council Report

The DLT Act’s origins lie in the Federal Council’s December 2018 report on the legal framework for blockchain/DLT in Switzerland. The report was remarkable for its analytical clarity and its recognition that the opportunity extended far beyond cryptocurrency to the tokenization of conventional financial instruments. The Federal Council concluded that while Swiss law already accommodated many blockchain business models — FINMA’s functional regulatory approach had addressed ICOs, crypto funds, and exchange businesses through existing frameworks — several specific gaps required legislative action.

Three gaps stood out. First, Swiss securities law did not recognise a category of securities that could be issued and transferred on a blockchain ledger without a paper document or a central register. Second, Swiss insolvency law did not clearly protect crypto assets held by a custodian on behalf of clients — if the custodian became insolvent, the status of client assets was uncertain. Third, Swiss financial market infrastructure law did not have a licence category for DLT-based trading facilities that combined trading and settlement functions in ways conventional stock exchanges did not.

The Federal Council sent the DLT Act bill to parliament in November 2019. After parliamentary deliberation and refinement, it was adopted in September 2020 with an eight-month implementation period, entering full force in August 2021.

Ledger-Based Securities: The Core Innovation

The DLT Act’s most consequential provision is the creation of ledger-based securities (Registerwertrechte in German) as a new legal category. Swiss law had traditionally required securities — rights requiring a paper document for their existence, transfer, and exercise — to be embodied in physical certificates or held through a recognised intermediary. The DLT Act amended the Swiss Code of Obligations to allow rights to be created as ledger-based securities: rights that are created and transferred on a distributed ledger in accordance with a set of rules agreed by the parties, without requiring any paper document.

To qualify as a ledger-based security, the arrangement must meet several requirements. The underlying right must be registered in a DLT system. The system’s rules must give the rightsholder direct control over the right — not mediated through an intermediary. Only the rightsholder may dispose of the right (the system must enforce exclusivity of control). And the system must comply with agreed technical and organisational standards.

The legal effect of this recognition is transformative. A bond issued as a ledger-based security under Swiss law is a proper security — enforceable against the issuer, transferable on the ledger without any additional documentation, and capable of being held on trust, charged as collateral, or included in insolvency proceedings — with the same legal certainty as a paper bond or a book-entry security held through SIX. This is fundamentally different from using a smart contract to represent bond obligations contractually: the ledger-based security is the bond, not a contract representing the bond.

DLT Trading Facility Licence

Swiss financial market infrastructure law previously recognised stock exchanges, multilateral trading facilities, and organised trading facilities — all categories designed for conventional trading systems with centralised order books and separate settlement systems. The DLT Act created a new licence category: the DLT trading facility.

The DLT trading facility licence is specifically designed for infrastructure that combines trading, clearing, and settlement functions that conventional market infrastructure law treated separately. A DLT trading facility can admit participants that are not professional financial intermediaries — including the beneficial owners of ledger-based securities themselves — a departure from conventional exchange models that admit only licensed members. It must obtain FINMA authorisation and satisfy financial, operational, and governance requirements specified in the Financial Market Infrastructure Act as amended by the DLT Act.

The licence is particularly suited to tokenized securities markets, where atomic delivery-versus-payment settlement — simultaneous transfer of the security token and payment — eliminates the settlement risk that conventional market infrastructure manages through central counterparties and settlement systems. A single DLT trading facility can, in principle, serve the functions of exchange, CCP, and central securities depository for DLT-based instruments.

Insolvency Segregation

The DLT Act amended the Federal Act on Debt Enforcement and Bankruptcy to clarify the treatment of crypto assets in custodian insolvency. Under the amended law, crypto assets held by a custodian for clients are segregated from the custodian’s estate in insolvency and returned to clients as proprietary assets — not claimed by the custodian’s creditors as part of the insolvent estate.

This protection is conditional: the custodian must actually hold the assets for clients rather than as its own assets, and the arrangement must be documented appropriately. But the legal clarity provided by the amendment addresses one of the most significant risks in crypto custody — the possibility that client assets are treated as the custodian’s own in insolvency, as occurred in several high-profile exchange failures. Switzerland’s insolvency protection for crypto assets predated equivalent protections in the UK, US, and EU by several years.

FINMA’s Implementation

FINMA, Switzerland’s integrated financial market regulator, implemented the DLT Act through updated guidance and supervisory practice. Its approach was consistent with its established principles-based regulatory philosophy: it explained how the new legal categories interact with existing regulatory frameworks, clarified the authorisation requirements for DLT trading facilities, and provided guidance on how ledger-based securities fit within FINMA’s asset management and securities regulation perimeters.

Several DLT trading facility licence applications have been submitted to FINMA since 2021, with the SDX — the SIX Digital Exchange — operating under equivalent permissions as part of the broader SIX regulatory authorisation. The SDX is the most prominent live demonstration of the DLT Act’s framework in operation: it issues and trades ledger-based securities for Swiss and international issuers, using FINMA-authorised infrastructure and Swiss law as the legal foundation.

Why Switzerland Set the Global Standard

The DLT Act established Switzerland as the global standard for tokenized securities law because of three qualities: completeness, precision, and speed. It addressed all three critical legal gaps simultaneously — securities issuance, trading infrastructure, and insolvency protection — rather than tackling them sequentially. Its provisions were drafted with the precision expected of Swiss federal law, leaving limited interpretive ambiguity. And it was enacted and in force by 2021, years ahead of equivalent frameworks in the EU (DLT Pilot Regime, 2023), UK (FMI Sandbox, 2024), and the United States (which has not enacted equivalent legislation). Switzerland’s willingness to move ahead of international consensus — and the Federal Council’s analytical capability to design a framework that has withstood subsequent scrutiny — produced a durable competitive advantage for Crypto Valley and Swiss financial market infrastructure providers that remains in place today.