12 July 2023

Digital Asset Resolution Package (DARP)

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FINMA's new practice to require a Digital Asset Resolution Package (DARP) framework is an important step for banks and financial intermediaries offering services related to digital assets.

According to the new FINMA practice, banks that offer services in connection with digital assets must prepare and implement a so-called Digital Asset Resolution Package (DARP). We also encourage financial institutions and financial intermediaries that hold digital assets to implement a DARP. First, the DARP increases the quality of the service and second, it is foreseeable that FINMA or the self-regulatory organizations will require DARP from additional financial institutions and financial intermediaries.

The DARP is intended to serve as an internal instruction manual as well as an information sheet for a possible bankruptcy liquidator and to summarize information, responsibilities and access possibilities in case of bankruptcy of a bank. The main objective of the DARP is to be able to transfer digital assets as custody assets to customers as quickly and easily as possible in the event of bankruptcy and to organize the bank's cooperation with the bankruptcy liquidator.

The DARP consists of several sections dealing with the various aspects of the scheme. For example, the purpose of the DARP and the legal background are presented as an introduction, and it is shown under which conditions customers are entitled to the digital assets in the event of the bank's insolvency and which requirements must be met for this.

Subsequently, the preparations for the case of insolvency are addressed. Under the relevant laws, assets that are deemed to be deposit assets are automatically segregated by the bankruptcy liquidator and transferred to the bank customer. This is the case if the bank has undertaken to keep the assets available to the customer at all times and if the assets are allocated either individually to the customer or to a community, specifying the customer's share of the community's assets.

Further, the various procedures in the event of bankruptcy are described. If FINMA issues a bankruptcy order, the measures provided for in the relevant ordinance on bankruptcy proceedings must be taken. With regard to digital assets, it regulates how assets held in custody and pending client orders are to be handled.

The DARP also provides that third-party providers may be involved in the process. Relevant regulations and annexes relevant to the implementation of the DARP are then listed.

In summary, the Digital Asset Resolution Package (DARP) is an important set of rules that ensures that customers' digital assets are properly preserved and transferred in the event of a bank insolvency. It establishes clear responsibilities and procedures to ensure the protection of customer assets and rights in the event of insolvency.