Israel and Switzerland have agreed to collaborate on issues including financial technology regulation, cryptocurrencies, market access and the fight against money laundering and terrorism finance. It is a move that should bring two of the world’s most sophisticated fintech markets closer together.
The announcement follows a visit to Israel by Switzerland’s finance minister, Ueli Maurer, and the head of its state secretariat for international financial matters, Jörg Gasser.
In interviews with Euromoney, cryptocurrency businesspeople applauded the decision, saying it would be useful for the market’s leading regulators to learn from each other, to better regulate and foster new financial technologies.
Speaking from Tel Aviv, Uriel Peled, the co-founder of public blockchain Orbs, says that Israel can learn from Switzerland’s initiatives in financial technology. He says that banking and anti-money laundering laws are still weak there, as are regulations around the sale of securities, thus hindering the market’s growth. Switzerland, he says, is more advanced in all of these areas, so Israel can learn from its expertise.
Conversely, Peled says, Israel is a pioneer in drafting tax laws favourable to the development of the market. For example, Israel considers virtual currencies to be financial assets, rather than actual currencies, meaning that they are subject to capital gain taxes, of up to 25% – a favourable rate for the country.
In a report, Ernst & Young says Israel’s applicable tax regime, described in a circular on digital tokens published by the tax authority earlier this year, “demonstrates Israel’s invigorative approach towards blockchain technologies and cryptocurrencies”, and “provides an opportunity for multinationals that are seeking to expand their operations in the virtual era”.
Peled says he welcomes that: “It’s super important for startups in Israel to have support on the incentive and regulatory sides.”
Asked if Israel could learn from Switzerland on how to handle crypto-businesses, Angel Versetti, chief executive and co-founder of Ambrosus, a blockchain ecosystem with offices in Zug, Switzerland’s bitcoin capital, says that the country is at the forefront of crypto-regulation and has both talented people in the sector and numerous programmes for startups.
But, he adds, the situation for companies active in this space is still far from optimal, and that many are asking themselves if they can operate in Switzerland and if they have the right support.
He says that after a period when Switzerland attracted crypto-projects and initial coin offerings, many in the sector are now leaving the country, as poorly thought-out regulation and opposition from incumbent financial institutions make the environment less attractive.
Up until recently, Israeli firms ran their initial coin offerings abroad, often in Switzerland, where conditions for such operations were considered advantageous, Versetti says. Now they are more likely to do so at home or look to other jurisdictions, such as Liechtenstein, Gibraltar or the Cayman Islands.
Echoing Peled’s point that Switzerland might learn from Israel’s tax laws, Versetti says Swiss taxes are hurting professional crypto traders. As an example, he points to the fact that bitcoin holders had to pay tax on the value of their holdings at the end of the last tax year, when valuations were high, and that their value has more than halved since then.
He says that, for some, this meant the amount they had to pay in tax was higher than the current value of their bitcoin holdings.
Versetti also bemoans anti-money laundering rules, saying that cryptocurrency firms find them hard to apply and that they can cause “unnecessary expenses” for startups.
Cryptocurrency firms both in Israel and in Switzerland struggle to acquire or maintain relations with licensed banks, many of which are wary of potential money-laundering risks.
Still, many in the cryptocurrency sector recognise the value of regulation to secure mainstream appeal.
Peled says the Swiss embassy in Israel has recently appointed an additional economic attaché focused exclusively on fintech and blockchain.
Both countries have agreed to share their analyses of blockchain technologies. Gasser has said that he is preparing recommendations on the regulation of blockchain for the Swiss parliament by the end of this year.
The Israel Securities Authority has also done much work in this area, producing an interim report in March on the regulation of public initial coin offerings.
Switzerland’s officials also discussed subjects other than fintech during their visit. Among their demands was that Swiss banks be allowed to trade funds in Israel, as banks from the European Union already can.