Distributed Ledger Technology (DLT) is the technology behind blockchain, which is the technology used for cryptocurrencies such as Bitcoin. It refers to the technological infrastructure and protocols that allows simultaneous access, validation, and record updating in an immutable manner across a network that's spread across multiple entities or locations.

The DLT Act defines a ledger-based security as a right that is entered in a securities ledger under a registration agreement. Such securities can only be exercised and transferred via a particular securities ledger.

Cryptocurrency in Switzerland is regulated by the Swiss Financial Market Supervisory Authority (FINMA). FINMA has issued guidelines on how it classifies different types of tokens and cryptocurrencies, which are based on their characteristics and the rights they confer to their holders.

The Swiss Distributed Ledger Technology (DLT) Act provides a legal framework for the creation, issuance, and trading of ledger-based securities, with the goal of ensuring investor protection and market integrity while fostering innovation in the field of blockchain and digital assets.

To operate in the cryptocurrency space, companies must either affiliate with a Self-Regulatory Organization (SRO) or be directly supervised by FINMA and obtain a license issued by FINMA. 

The DLT Act does not specifically define cryptocurrency. Instead, it focuses on regulating the use of distributed ledger technology (DLT) in the financial sector, and defines certain terms such as "DLT assets" and "qualified custodian" that may apply to cryptocurrency.

The DLT Act states that ledger-based securities are subject to the same regulations as traditional securities, such as those related to transparency, investor protection, and market integrity. This means that companies issuing ledger-based securities must comply with the same disclosure requirements, prospectus requirements and other regulations as traditional securities.

Five types of authorization include licensing, recognition, authorization, approval and registration.

Financial intermediaries can either affiliate with a Self-Regulatory Organization (SRO) or be directly supervised by FINMA for anti-money laundering purposes.

Depending on the nature of the asset and business activity, companies may need to obtain a banking license for custody or trading activities with payment tokens, or a FinTech license for certain FinTech activities.

Companies involved in securities trading may also need to be authorized under the Financial Institutions Act or the Financial Market Institution Act.

Companies using Distributed Ledger Technology (DLT) are required to obtain a license for trading DLT securities if they facilitate exchange of bids between participants, hold DLT securities in central custody, or clear and settle transactions in DLT securities.

Intermediaries joining an SRO must guarantee compliance with anti-money laundering duties, have a good reputation, have a person responsible for compliance and have qualified participants with good reputations.

FINMA publishes guidelines for different types of companies and advises applicants to arrange a meeting with FINMA representatives before applying for a license.

FINMA has issued guidelines on how it classifies different types of tokens and cryptocurrencies, which are based on their characteristics and the rights they confer to their holders. According to these guidelines, there are three main types of tokens recognized in Switzerland:  

1. Payment tokens: these are tokens that are intended to be used as a means of payment and are interchangeable with other forms of money. Bitcoin (BTC) and Ethereum (ETH) are examples of payment tokens. They do not grant holders any rights to participate in a company's decision-making or to receive a share of its profits.  
2. Utility tokens: these are tokens that grant holders access to a specific application or service. They are not intended to be used as a means of payment and do not confer any rights to participate in a company's decision-making or to receive a share of its profits.  
3. Security tokens: these are tokens that represent an investment in an asset or a company, such as shares in a company, and can give rights to participate in a company's decision-making or to receive a share of its profits.   

• It is worth noting that these classifications are not set in stone and that the tokens can be classified differently based on the case and the rights they are giving. Also, the distinction between these types of tokens is not always clear-cut, and some tokens may exhibit characteristics of more than one category.    

The company is required to appoint at least one local Director who is either resident in Switzerland, or is a Swiss national. Further, the Swiss company must hire a local staff. Moreover, the company must have a physical office in Switzerland where its business and local staff operate. 

Additionally, crypto companies must hold an annual general meeting for shareholders within six months of the end of their financial year. This meeting must take place in Switzerland and be held in person, with no option for virtual attendance through videoconference, teleconference, or circular letter. Shareholders are permitted to participate through proxy representation.

If you cannot provide a local director from your side, FF Advisers can satisfy this statutory requirement.

Yes, it is possible to have a legal entity as a shareholder. However, we recommend to have individuals as the shareholder to reduce the complexity of the licensing process. 

It takes approximately 3-4 months to set up a company in Switzerland. Further process and timeframe of license obtaining will depend on the complexity of ownership structure, commercial proposition, and cooperation of the related parties since the application process runs in close collaboration with an applicant. License obtaining requires a number or additional steps and may take up to 1 year to complete taking into account a time for consideration by the Swiss Regulator FINMA.