Digital Assets Terms and Conditions
1. Scope of the Service
1.1 Pursuant to the terms and conditions of these specific terms, as amended and/or restated from time to time (the “Specific Terms”), Swissquote Bank Europe SA (the "Bank") offers to the client (the "Client") the opening and holding of a trading account (the “Trading Account”) in connection with and for the purposes of the following service (the "Service"):
(a) Trading: the ability to purchase and/or sell digital assets issued and transferable on a distributed ledger and/or blockchain (each a "Distributed Ledger"), including cryptocurrencies, tokens and other types of cryptographic assets (the "Digital Assets");
(b) Custody: the custody of Digital Assets;
(c) Staking: the participation in the validation mechanisms of certain Distributed Ledgers using proof-of-stake (PoS) algorithms, by committing or locking eligible Digital Assets; and
(d) Transfers: the ability to transfer Digital Assets to or from an address or wallet on the relevant Distributed Ledger (each a "DLA").
The Service is solely provided by means of the Bank’s electronic system (the "System").
1.2 Digital Assets available for Trading (as indicated in the System from time to time) may only be purchased and/or sold through the System against a limited number of legal tenders (e.g., U.S. dollars and euros) (each a “Permitted Currency”), as indicated in the System. Whereas the trading of Digital Assets is generally available all the time from Monday to Sunday (the “Availability Period”), the Client understands they are responsible for ensuring they have cleared funds in a Permitted Currency on their Trading Account prior to acquiring Digital Assets.
1.3 The provision of the Service by the Bank to the Client, and the use of and the access to the Service by the Client, shall be governed, in addition to these Specific Terms, by the completed account opening documentation (the “Account Opening Form”), the General Terms and Conditions, the "Important Legal Information" published on the Bank's Website and other contractual clauses forming part of the Client's relationship with the Bank (jointly, the “Agreement”). As far as the Service is concerned, these Specific Terms shall prevail in case of any conflict with the General Terms.
1.4 The Client acknowledges and agrees that:
- the Bank does not manufacture Digital Assets and the availability of Digital Assets to trade is dependent upon third parties;
- without prejudice to the remaining terms hereof, the Client does not have access to, under the Agreement, Digital Assets that may be, as at the date of the opening of the Trading Account, or that may become (at any time during the term of the Agreement), in each case, in the reasonable opinion of the Bank or as a result of the development of applicable laws, regulations and/or regulatory practices in any relevant jurisdictions (a) financial instruments1, (b) payment instruments2 , and/or (c) electronic money3 and, in accordance, the Bank reserves the right to, for the purposes of complying with its legal and/or regulatory obligations at all times (i) adapt the terms under which the Service is provided and/or (ii) cancel the provision of the Service with respect to one or more Digital Assets.
- the liquidity of Digital Assets, if any, relies on the prices offered by the Bank's liquidity providers, which may include regulated or unregulated markets, trading platforms, counterparties and other service providers (the "Liquidity Providers"), for the relevant Digital Assets;
- the Bank has no obligation to make available prices for any Digital Assets, in particular in situations of illiquidity where no prices are available from any of the Bank's Liquidity Providers;
- in the event of illiquidity of Digital Assets, the Bank may, but will be under no obligation to, set prices for the Digital Assets at the Bank’s discretion. In such a scenario, the Bank may, without obligation, determine the valuation by applying rates from electronic financial information systems or other reasonable sources as determined by the Bank;
- the Bank makes no representation as to whether evidence of a purchase of a Digital Asset on a Distributed Ledger would be seen as sufficient evidence by a court as evidence of ownership of that Digital Asset;
- the Bank is not liable to the Client for any risks associated with proving title through data held on a Distributed Ledger; and
- unless required by law or order of the court, the Bank is not required to undertake any act in order to perfect legal title to Digital Assets evidenced through data held on a Distributed Ledger
- the Bank has no obligation and does not undertake to accept all Digital Assets in custody or permit all transfers of Digital Assets that the Client may wish to execute.
The Client acknowledges and accepts that the Client will not be able through the System, unless specifically indicated otherwise by the Bank and/or provided in these Specific Terms, to:
- purchase, receive or transfer Digital Assets from an address or wallet on the relevant Distributed Ledger (each a "Distributed Ledger Address" or "DLA"), or from any other distributed ledger or exchange to the Trading Account, or otherwise to the System, except in the manner and on conditions determined by the Bank from time to time;
- purchase or sell goods or services with Digital Assets and/or request the transfer or delivery of Digital Assets to a specified DLA or exchange, or the delivery of any physical token, certificate or other instruments incorporating any Digital Asset.
1.5 Unless otherwise expressly stated, capitalized terms used in these Specific Terms and not otherwise defined herein shall have the meaning ascribed to them in the Bank’s general terms and conditions, as amended and/or restated from time to time (the “General Terms and Conditions”).
1.6 Your application to open a Trading Account with the Bank or your use or continued use of the Service will be taken as your consent to be legally bound by the Agreement, as such term is defined in clause 1.3.
1 Within the meaning of Directive (EU) 2014/65, as amended.
2 Within the meaning of Directive (EU) 2015/2366, as amended.
3 Within the meaning of Directive 2009/110/EC, as amended.
2. Duties of the Bank | Limitations
2.1 Without prejudice to the remaining terms of the Agreement, the Client acknowledges and agrees that the Bank's role, obligations and responsibility to the Client in relation to the Digital Assets as part of the Service shall be limited to:
(a) holding the Digital Assets as nominee (fiduciary) in its own name, but for the account of the Client, on the terms of this Agreement;
(b) executing, to the extent possible and subject to the limitations of the Agreement, Clients’ instructions in relation to the Digital Assets.
2.2 Unless otherwise indicated, the Bank has not performed any due diligence on the Digital Assets or on their issuer(s). In the event that the Bank performed any due diligence on the Digital Assets and/or the issuer, it did so for its exclusive benefit. The Client is not entitled to obtain any information on the due diligence performed by the Bank (if any) and shall have no right to rely on or benefit from such due diligence review, the manner in which such review was conducted or its conclusions or results.
3.1 The Service and each Transaction (as defined below) are subject to such fees (the "Fees"), details of which are stipulated in the current fee schedule published on the Bank's Website or agreed upon separately in writing. All Fees due for the provision of the Service will be known to the Client before the provision of the Service is requested by the Client from the Bank.
3.2 The Bank reserves the right to amend the Fees at any time and the Client shall be notified of such amendments accordingly in a manner deemed appropriate by the Bank in advance of any changes taking effect.
3.3 The Bank reserves the right to apply different Fees according to objective criteria defined by the Bank (e.g., volume of Digital Assets, size of the Order). The pricing methodology will be made available on the fee schedule available on the Bank’s Website.
4. Custody of the Digital Assets
4.1 Digital Assets acquired through the System may be kept by the Bank in custody (a) either directly, or (b) with a third party custodian, depositary or professional service provider (each a "Sub-custodian") in the name of the Bank, acting as nominee (fiduciary), but for the account and at the sole risk of the Client. Sub-custodians are selected by the Bank. Upon written request, the Bank will provide a list of criteria used by the Bank to identify suitable Sub-custodians. The Client acknowledges that, unless otherwise indicated by the Bank, the Bank determines in its sole discretion whether the Digital Assets are kept in custody directly by the Bank or by a Sub-custodian. A substantial part, and potentially all, Digital Assets may therefore be held with a Sub-custodian. All Digital Assets credited from time to time to the Trading Account of the Client and sub-deposited with a Sub-custodian will be held by the Bank solely as nominee on behalf of the Client, which remains the legal and beneficial owner of such Digital Assets.
4.2 The list of Sub-custodians which may be used by the Bank for the Digital Assets is available on the Bank’s Website and/or in the System and may be amended or updated by the Bank from time to time without prior notice. Unless otherwise indicated by the Bank, the Client is not allowed to submit instructions regarding the choice of Sub-custodians with which the Client's Digital Assets are to be kept in custody. The custody of the Client's Digital Assets through Sub-custodians is subject to the laws, customs, rules and conventions applicable to the Sub-custodian, in particular in the jurisdiction of the Sub-custodian.
4.3 Digital Assets held on behalf of the Client may however be pooled with Digital Assets of the same type belonging to other clients of the Bank, to the Sub-custodian and/or to other clients of the Sub-custodian. Accordingly, but without prejudice to the provisions on legal title to Digital Assets, the Client shall not have the right to any specific Digital Assets, but will instead be entitled, subject to any applicable laws and regulations and to the Agreement, to a quantity of Digital Assets of the same description and of the same amount or quality, or the corresponding claim for delivery thereof that the Bank holds, as nominee for the Client, against any Sub-custodian, or the counter-value of the sale thereof in a currency or cryptocurrency.
4.4 The Bank shall not be liable for any loss directly or indirectly attributable to an action or omission, or for the insolvency/bankruptcy or similar event affecting any Sub-custodian. In case the Bank is unable or deems it difficult to retrieve the Digital Assets deposited with a Sub-custodian, the Bank may assign to the Client any claims for the return of the Digital Assets or for the counter-value of the sale of such Digital Assets in another currency or cryptocurrency against the Sub-custodian, to the extent such a claim exists and can be freely assigned to the Client.
4.5 The Client acknowledges and accepts that applicable laws, the nature of the Digital Assets under any applicable laws and/or the terms of any documents constituting the offering documents of any Digital Assets (the “Offer Documents”) may, in fact, prohibit or otherwise prevent Digital Assets (or a quantity of Digital Assets) from being returned to the Client at any time during the life of the Digital Assets and/or the term of the Agreement and, save for the wilful misconduct or gross negligence of the Bank, the Client accepts to bear such risk in full and, accordingly, releases the Bank from any liability in connection with the foregoing.
4.6 The Client acknowledges and agrees that the Client bears the risk of the Digital Assets held directly by the Bank and/or through a Sub-custodian being compromised for any reason (e.g., hacking, theft, fraud, cyber-attack, loss of private key, etc.) (each a "Loss Event"), absent any fraud or gross negligence of the Bank. In particular, the Bank shall have no liability in connection with a Loss Event resulting from any action, omission, or otherwise attributable to any Sub-custodian.
4.7 In case of any Loss Event, the Bank shall promptly notify the Client and inform the Client of any measures taken to mitigate the impact of such Loss Event. For the avoidance of doubt, the Bank will not have any obligation to mitigate the occurrence or the impact of any Loss Event.
4.8 The Bank does not undertake to offer custody services for the Digital Assets during the entire duration of the Digital Assets. In case the Bank discontinues or is unable to continue offering custody services for the Digital Assets, for whatever reason, the Bank may prevent, condition or delay the transfer, or sale, of the Digital Assets if the Bank deems it necessary or appropriate for its own protection and/or to comply with its legal or regulatory obligations.
5. Services related to Staking
5.1 The Bank may, from time to time, accept instructions from the Client to designate certain eligible Digital Assets kept in custody with the Bank to be used to participate in the validation mechanisms of certain Distributed Ledgers using a proof-of-stake (PoS) algorithm (referred to as "Staking" such Digital Assets, and "to Stake" shall be construed accordingly). Users who participate in the validation of transactions and other operations of such Distributed Ledgers may, under certain circumstances, receive rewards in accordance with the rules and protocols of the relevant Distributed Ledgers ("Rewards"). The validation mechanisms of Distributed Ledgers are highly complex and are governed by rules and protocols that are subject to change at any time and are beyond the Bank's control. There can be no assurance that Staked Digital Assets will be entitled to or receive any Rewards.
5.2 Unless otherwise indicated in the System or on the Bank's website, the Bank does not operate the infrastructure that allows the Client to Stake Digital Assets and instead relies on Sub-custodians. When the Client instructs the Bank to Stake certain Digital Assets, the Bank shall, acting in its name, but for the account and at the sole risk of the Client, give a corresponding instruction to the relevant Sub-custodian(s). When instructing Sub-custodians, the Bank shall give them full authority to do what such Sub-custodians consider to be appropriate or necessary in order for the relevant Digital Assets to participate in the validation mechanism of the appropriate Distributed Ledger. Sub-custodians are in particular authorized to (a) transfer those Digital Assets to third parties, including delegates, custodians and/or validators, (b) lock the Digital Assets, and (c) include the Digital Assets in a pool or Smart Contract. The Bank shall only have a claim for the restitution of the Staked Digital Assets against the Sub-custodian, or third parties appointed by the Sub-custodian, which claim the Bank shall hold as nominee (fiduciary) in its name, but for the account and at the risk of the Client. When deciding to Stake their Digital Assets, the Client acknowledges that they are bearing the risk that Sub-custodians will be unable (or will default on their obligation) to return those Digital Assets to the Client. The Client therefore bears the risk that these Digital Assets will be lost, stolen, compromised or subject to penalties.
5.3 If the Client instructs the Bank to Stake the Client's Digital Assets with a specific Sub-custodian, the Bank shall be entitled to rely on that instruction and not perform due diligence on how the Sub-custodian uses the Client's Digital Assets to participate in verification mechanisms of Distributed Ledgers. The Client acknowledges and agrees that any decision to Stake Digital Assets with a particular Sub-custodian is the Client's own decision and that the Client has considered the relevant (increased) risks of doing so and has conducted appropriate due diligence/verifications on the Sub-custodian.
5.4 When Staking Digital Assets, the Client does not have a guaranteed claim to any Reward. The Bank does not guarantee or undertake that the Client will effectively receive any Reward in respect of Staked Digital Assets, and any indication in the System or on the Bank's website regarding Rewards that can be expected from Staking shall be construed as purely indicative and not binding. The entitlement to and effective delivery of Rewards, if any, depends on numerous factors beyond the Bank's control, including the relevant Distributed Ledger rules and protocols (which may provide that validation rewards are allocated randomly), as well as the processes used by Sub-custodians and third parties they rely on to provide their services. Further, unless the Bank indicates otherwise, Rewards received by the Client will not be automatically Staked (to the extent they could be). The Client acknowledges that fees and costs of Sub-custodians (including of third parties appointed by them, such as delegates, custodians and/or validators) or of the Bank, as well as any applicable taxes, may be deducted from Rewards before such Rewards are paid to the Client.
5.5 The Client acknowledges and agrees that, as long as the Client's Digital Assets appear as "Staked" (or similar wording to this effect) in the System, the relevant Digital Assets cannot be sold. If the Client wishes to stop Staking such Digital Assets (referred to as "Unstaking", and "to Unstake" shall be construed accordingly), the Client shall submit a corresponding request through the System. Unstaking Digital Assets may take significant time and the Bank is not committing to Unstake Digital Assets within a particular timeframe. If Digital Assets are Staked through a Sub-custodian, the Bank's only obligation in respect of the Unstaking of such Digital Assets shall be to transmit a corresponding request to the relevant Sub-custodian, at the Client's sole risk.
5.6 Generally, the Client accepts that the services contemplated in this Section are provided on an "as is" basis. Without limiting any other provisions of this Contract, the Bank does not undertake to and does not guarantee or represent that: i) Digital Assets appearing as "Staked" (or similar wording to this effect) in the System will effectively participate in the validation mechanisms of the relevant Distributed Ledgers; ii) the Bank will be able to Unstake Digital Assets and/or that Staked Digital Assets will not be lost or compromised; and iii) any action that is, has been or will be taken by Sub-custodians, their delegates or sub-custodians is appropriate.
6. Transfers of Digital Assets
6.1 The Bank may provide the Client with access to the transfer of Digital Assets functionality at its sole discretion. Eligibility criteria (including the total value of the Digital Assets to transfer or the Client’s categorisation as per their investor profile) may inhibit the provision of such functionality. The Bank allows transfers of Digital Assets (the "Transfers", and to "Transfer" shall be construed accordingly) from a DLA not controlled or operated by the Bank (each an "External DLA") to the Trading Account or to the System via a DLA controlled or operated by the Bank (each a "Bank DLA"), and vice versa, at its sole discretion. The Client shall have no right to request that a particular Transfer be effected or accepted by the Bank, even if such Transfer complies with the terms of this Contract and the Trading Account documentation.
6.2 The Bank shall not be required to execute Transfers within a prescribed timeframe. Transfers of Digital Assets may take longer to process than traditional payments in Fiat currencies or transfer of securities through the traditional banking system due to technical factors, including the use of "cold storage" facilities and validation algorithms used on the relevant Distributed Ledger. In addition, the Bank may condition, delay or refuse the execution of Transfers. The Client acknowledges that these restrictions may prevent the execution of pre-defined strategies or the execution of transactions that depend on such Transfers.
6.3 The Bank shall be entitled to define certain types of Digital Assets for which Transfers are (or are not) allowed, set limits to Transfers that apply generally to all clients, to request documentary evidence, and to conduct verifications with respect to the Client, to External DLAs or to the Digital Assets. Such verifications may include Transfers to the Bank of small quantities of Digital Assets, as well as requests for information and/or documentation on the originator and/or beneficiary of any Transfer. If the Bank requests that the Client perform a Transfer of this kind for verification purposes, the Bank shall have no obligation to credit the relevant Digital Assets on the Client's Trading Account and shall also have no obligation to Transfer back the Digital Assets to the Client. The Client hereby authorises the Bank to conduct such verifications and undertakes, upon request of the Bank, to provide documentary evidence, third party consents, and any other information that the Bank may request for the purpose of authorising Transfers. Nothing in this Contract shall be construed as creating an obligation for the Bank to effect or accept a Transfer, including if the Client has provided all information and confirmations requested by the Bank.
7. Transfer execution
7.1 The Client shall initiate a Transfer only after having obtained the Bank's pre-clearance and received Transfer data, including the details of a Bank DLA. The Client shall not use Bank DLAs previously communicated by the Bank as part of Transfer data unless the Bank has confirmed that such Bank DLAs may be reused for the contemplated Transfer. In the event that the Client initiates a Transfer prior to having received the Bank's pre-clearance or if, after having given its pre-clearance, the Bank decides not to authorise the Transfer, the Bank shall have no obligation to credit the relevant Digital Assets on the Client's Trading Account. In such a case, the Bank shall proceed as it sees fit to protect its interests, and shall inter alia be entitled to initiate a Transfer of the Digital Assets (less any fees or costs of the Transfer) to any External DLA to or from which the Client has Transferred Digital Assets using the Service (other than External DLAs which the Client has specifically instructed the Bank in writing not to be used for Transfers) or to retain the Digital Assets until the Client has provided the information or documentation required by the Bank and/or until the Bank has completed to its satisfaction all verifications it deems necessary for its own protection or to comply with applicable laws, regulations and professional standards. In addition, the Client acknowledges that not all Digital Assets may be compatible with the System and that, should the Client initiate a Transfer of Digital Assets that are incompatible with the System, these Digital Assets may be irremediably lost.
7.2 The Client acknowledges that it is the Client's responsibility to communicate correct Transfer data (e.g., details of the relevant External DLA) to the Bank. The Bank shall be entitled to rely on the Transfer data provided by the Client and shall have no obligation to verify such Transfer data. The Client shall also be responsible for ensuring that it has access to the necessary keys, passwords or approvals necessary to use the DLAs on which Digital Assets are to be transferred by the Bank. It shall also be the Client's responsibility to ensure that it has correctly reflected the Bank's Transfer data when initiating a Transfer to a Bank DLA. The Client acknowledges that a single and seemingly minor mistake in communicating the Transfer data may result in the Digital Assets being irremediably lost, and the Bank shall have no liability whatsoever in such a case.
7.3 In order to receive Digital Assets on an External DLA, the Client must have, or procure that a third party has, a wallet which possesses a technical infrastructure that is compatible with the receipt, storage and transfer of the relevant Digital Assets, as may be prescribed from time to time by the respective Issuer of such Digital Assets. The Client is solely responsible for ensuring that the External DLA and the relevant associated wallet are compatible with the Digital Assets of which the Client requests a Transfer to the External DLA, and bears the risk of loss of such Digital Assets. The Bank shall have no duty to verify the compatibility of the relevant Digital Assets with the External DLA or wallet, nor to alert the Client to any particular requirements as may be applicable to certain Digital Assets.
7.4 When initiating Transfers of Digital Assets from an External DLA to a Bank DLA, the Client shall be responsible for defining and paying all fees (including "mining" fees) relating to the Transfer.
7.5 The execution of Transfers is subject to risks and to the actions of third parties over which the Bank has no control. The Client acknowledges, in particular, that the Bank does not control the relevant Distributed Ledger, and that the agreement or consent of a substantial part of the stakeholders of the relevant Distributed Ledger may be necessary for a Transfer to go through. When it accepts to execute a Transfer from the System to an External DLA, the Bank does not warrant that the relevant stakeholders will approve the Transfer, and when executing Transfers, the Bank only undertakes to send (or procure that a third party will send) a transaction message to one validation node on the relevant Distributed Ledger, which the Bank reasonably believes to be active.
7.6 The Bank does not warrant that the Digital Assets it Transfers to an External DLA will be accepted by third party banks, exchanges, wallet providers or merchants with which the Client may intend to use such Digital Assets. The Client bears the risk of loss of all or part of Digital Assets in case of incomplete, erroneous or inappropriate Transfer data.
8. Transfer fees
8.1 When initiating Transfers from a Bank DLA to External DLAs, the Bank shall (at the sole cost and risk of the Client) pay the fees (including "mining" or “gas” fees) that are strictly necessary (pursuant to the relevant Distributed Ledger's rules and protocols) for the Transfer to be executed.
8.2 The Bank shall nonetheless be entitled to pay such higher fees for the Transfer as it deems necessary to ensure a reasonably timely execution of the Transfer (and shall correspondingly be entitled to charge such fees to the Client), provided however that nothing in this Contract shall create an obligation for the Bank to analyse each contemplated Transfer and/or to pay the fees that would be required to ensure the best outcome for the Client from a timing and cost perspective.
9. Liability for Transfers
9.1 The Client shall solely be liable for any costs, loss or damage resulting from errors in, incomplete, delayed or rejected Transfers.
9.2 The Bank shall not be liable for any loss or damage resulting from the Bank's reliance on the information (in particular Transfer data, including the External DLA) provided by the Client as part of the processing of a Transfer and /or in response to any of the Bank's verification procedures.
9.3 Except as may be specifically agreed by the Bank and subject to additional requirements and/or verifications as the Bank may in its discretion impose, respectively request, the Client represents and warrants that:
- the Client is the sole owner and sole controller of the External DLAs from or to which a Transfer is requested by the Client hereunder, or, provided that the Bank has explicitly agreed to a Transfer to or from DLAs owned or controlled by a third party service provider (e.g., custodian, exchange or other intermediary), the third party service provider acts for the account of the Client and upon the Client's risks and instructions;
- the Client is the sole owner of the Digital Assets to be Transferred and the Client is the originator, respectively the ultimate beneficiary of the Transfer;
- the Client understands and accepts the risks related to the Service and the Digital Assets, and in particular to the Transfers from or to External DLAs.
10. Verification procedures | Transaction & Transfer limits
10.1 The Bank may require the Client to complete certain verification procedures before the Client is permitted to use all or part of the Service, in particular before the Client is allowed to request Transfers to or from External DLAs. As part of such verification procedures, the Bank may require the Client to provide additional information and/or documents, respectively to determine to the Bank's satisfaction (if deemed appropriate by the Bank) that the External DLA to or from which the Client requests a Transfer is owned and controlled by the Client. The Client shall be solely responsible for the costs and fees of complying with any such requests or verification procedures.
10.2 Depending on the results of the verifications conducted by the Bank, the information and documents received from the Client and/or the activity on a Trading Account, certain limitations on the Client's ability to use all or part of the Service may be placed, rescinded or amended by the Bank, in its entire discretion, in the System, in particular trading limits, limits to incoming and outgoing Transfers or limits on types or specific Digital Assets.
10.3 The Bank may at any time require the Client to provide or confirm information, including before or after completion of any Transaction (as defined below), including (for the avoidance of doubt) Transfers, and depending on the verification, suspend certain Services permanently or temporarily. Furthermore, the Bank shall be entitled to Transfer all Digital Assets received from an External DLA (less any fees or costs of the Transfer) to any External DLA to or from which the Client has Transferred Digital Assets using the Service (other than External DLAs which the Client has specifically instructed the Bank in writing not to be used for Transfers).
10.4 The Bank may charge additional fees and costs for conducting verification procedures.
11. Rights Attached to the Digital Assets
11.1 The Client acknowledges that Digital Assets may incorporate various rights and obligations, as defined by the issuer and as described in the Offer Documents.
11.2 The Bank does not undertake to exercise the rights incorporated in the Digital Assets or perform the obligations imposed on the holders of such Digital Assets on behalf of the Client. Furthermore, the Bank is under no obligation to ensure or procure that the Client will be able to exercise such rights. The Client acknowledges that this may have far-reaching implications for them, including without limitation the Bank not having any obligation to:
- claim dividends or other distributions made by the issuer of the Digital Assets and to which the Client would be entitled or otherwise request, assist with, or provide for the financial settlement of any financial assets where those are contemplated by the terms of the Digital Assets;
- exercise voting or any other political rights attaching to any Digital Assets (where those exist);
- exercise subscription or conversion rights attached to the Digital Assets;
- request the physical delivery of physical goods if contemplated by the terms of the Digital Assets;
- request the performance of the issuer's obligations under the terms of the Digital Assets (e.g., an obligation to perform a service, if contemplated by the terms of the Digital Assets).
The Client therefore acknowledges that he may never be able to fully benefit from the particularities of specific Digital Assets.
11.3 The Bank has no obligation to take any measure to claim refunds for taxes on behalf of the Client.
11.4 In the event that the Bank is nonetheless prepared to exercise certain rights or perform certain obligations attached to the Digital Assets, the Client must submit instructions to the Bank in accordance with the terms and conditions set by the Bank. Should the Client fail to do so, the Bank is authorised (but not obliged) to act at its discretion with the purpose of protecting the Client's presumed interests, as determined by the Bank acting with reasonable care.
12. Execution of Orders and Transactions in Digital Assets
12.1 The Bank executes orders to purchase or sell, Stake and/or Unstake Digital Assets ("Orders") and carries out subsequent transactions on the Digital Assets ("Transactions") in its own name but for the account and at the sole risk of the Client.
12.2 The Bank reserves the right to reject any Orders, including requests for changes or cancellations, if, in the Bank's judgment, it is reasonable to do so. If the Bank determines that any instructions are unclear or conflicting, the Bank may choose not to act on them until the Bank is satisfied that the ambiguity or conflict has been resolved. Upon so being requested, the Client will promptly provide all information and assistance requested by the Bank to clarify or set aside the conflict or ambiguity. The Bank may refuse to act on any instructions that the Bank believes are contrary to or not permitted by, applicable laws, regulations or other relevant requirements or that would cause the Bank to breach its regulatory or legal obligations. The Bank shall not be obliged to disclose the reasons for which it refuses to process or cancels an Order.
12.3 There is no guarantee or assurance whatsoever that a secondary market exists or will exist in the future for the Digital Assets, and the Bank does not undertake to act as a market maker (or in a similar capacity) with respect to the Digital Assets. Although the Bank may agree to provide certain brokerage services for the Digital Assets, there is no guarantee that the Client will be able to acquire additional Digital Assets through the System or to sell Digital Assets he has acquired through the System. Furthermore, although third parties and digital assets exchanges or markets may quote or offer prices for the Digital Assets, the Bank is under no obligation to offer, as part of the Service, the execution of Orders with such third parties or on such exchanges or markets.
12.4 Details regarding the type of Orders that can be placed for the Digital Assets are published on the Bank's Website and/or in the System.
12.5 Transactions will be executed on the trading facility, on the market (whether or not the relevant market is specifically regulated as such) or with the counterparty chosen by the Bank in its sole discretion.
12.6 If the Bank accepts to execute an Order, the Bank shall be entitled to debit from or block an amount on the Client's account aiming at covering the purchase price until the Transaction is finalised.
12.7 Settlement of Transactions in the Digital Assets may take longer than the customary settlement cycle of regulated securities exchanges or other markets and trading facilities. After an Order has been submitted, the Client will only be allowed to cancel or withdraw such Order if the Bank deems in its sole discretion that such cancellation or withdrawal is possible and is not detrimental to its or the Client's interests, and/or to the operation of the System.
12.8 The Bank's obligations with respect to Transactions are conditional on the Bank's actual receipt of the relevant funds, even if the credits or debits associated with such funds or Digital Assets were already displayed in the Client's Trading Account prior to the actual settlement. The Bank shall be authorised to cancel at any time entries on the Client's Trading Account for which no settlement has occurred or has yet to occur.
12.9 The ability of the Bank to execute Transactions may be limited by the terms of the Digital Assets. In particular, the issuer may have placed temporary or permanent limitations on the transfer of or transactions involving Digital Assets. These limitations may include "whitelisting" procedures, whereby only investors who have passed certain anti-money laundering / know your customer verifications will be able to execute transactions. Limitations may also include initial "lock-ups" or temporary "freezes". The Client is furthermore advised to consult the Offer Documents and other terms applicable to the Digital Assets for additional restrictions that may be applicable thereto as a result of such documents and/or terms.
Except as specified otherwise in this Contract, on the System or as may otherwise be agreed upon with the Client, Transactions on Digital Assets will be executed through the Order execution channel chosen by the Bank in its sole discretion. The Bank may define a single Order execution channel per Digital Asset, which may be a platform operated by Swissquote Bank Ltd or another liquidity provider as published on the Bank’s website. The Client acknowledges, in this respect, that:
(a) the Bank shall take all necessary steps to obtain, when executing orders, the best possible result for their clients taking into account the best execution factors of price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to the execution of the order, unless the crypto-asset service provider concerned executes orders for crypto-assets following specific instructions given by its clients;
(b) the Bank does not guarantee that there will be sufficient liquidity on any Order execution channel through which an Order is routed, including if such channel is a trading platform operated by Swissquote Bank Ltd or another liquidity provider; and
(c) if the Client is suspended, excluded or banned, on a temporary or permanent basis, from a trading platform that serves as the only Order execution channel by decision of such platform's operator, the Client will be prevented from entering into purchases or sales of the relevant Digital Assets through the System.
12.10 If the Bank accepts to execute an Order to purchase Digital Assets, the Bank shall be entitled to debit from or block an amount on the Client's account aiming at covering the purchase price until the Transaction is finalised.
13. Restrictions on Orders and Transactions
13.1 The Bank may place limitations and restrictions (the "Restrictions") on the Client's ability to trade Digital Assets, even if such restrictions are not provided by the terms of the Digital Assets, including, without limitation, as a result of the Bank having to comply with any legal and/or regulatory obligations.
13.2 Unless otherwise specifically agreed to by the Bank, the Restrictions may include all or some of the following limitations on the Client's ability to place Orders and/or to carry out subsequent Transactions on Digital Assets:
- Digital Assets acquired through the System may only be sold through the System;
- Digital Assets acquired through the System may not be transferred to a DLA controlled by the Client or by a third party;
- Digital Assets acquired outside of the System may not be transferred to the Client's Trading Account with the Bank.
14. Treatment of "Hard Forks" and similar events
14.1 Any disagreement among stakeholders of a particular Distributed Ledger may result in a split of a relevant Digital Asset into two or more incompatible versions (such an event called a "Hard Fork"). The treatment of Hard Forks and similar events (including "airdrops" and other Digital Asset allocation events) is uncertain from a legal and practical perspective. Hard Forks may in particular cause the Digital Assets to be duplicated, i.e., one version of the Digital Assets will remain on a specific version of the Distributed Ledger, while the other version of the Digital Assets will be traded on another version of the same Distributed Ledger. In such a case, the issuer of the Digital Assets is expected to determine which version of the Distributed Ledger is supported. The Bank's current policy in relation to Hard Forks and similar events is available in the System and/or on the website, and may be amended and updated from time to time without prior notice.
14.2 The Bank may also be unable (and has no obligation) to support both versions of a Distributed Ledger. Depending on the decision of the issuer, the Client may be unable to claim the version of the Digital Assets that is supported by the issuer. This could lead to the total loss of value of the Digital Assets held on the Trading Account, as these are no longer supported by their Issuer. The Bank shall apply best efforts to take any commercially reasonable action in relation to a Hard Fork or similar events as the Bank deems appropriate to procure that the Client will not suffer adverse consequences resulting thereto. Notwithstanding the above, the Client has no claims against the Bank in connection with Hard Forks and similar events.
14.3 Third parties may also allocate new or existing Digital Assets to various stakeholders of a Distributed Ledger, sometimes free of charge (a process referred to as an "airdrop"). Airdropped Digital Assets may contain malicious code, be associated with fraudulent or unserious projects, or be incompatible with the System for other reasons. The Bank therefore decides on a case-by-case basis how to approach and handle airdrops. The Bank has no obligation to support Digital Assets that have been airdropped. The Bank is therefore entitled to decide (i) not to credit airdropped Digital Assets on the Client's Trading Account, and/or (ii) not to offer to the Client the possibility to Transfer the airdropped Digital Assets to an External DLA. The Client acknowledges that, as a result of the above limitations, the Client may be unable to participate in or benefit from airdrops.
14.4 The Client acknowledges that the Bank may be unable to benefit from any Hard Fork or similar events (incl. "airdrops" and other Digital Asset allocation events). The Bank may also be unable (and has no obligation) to support both versions of a Distributed Ledger. Depending on the decision of the issuer, the Client may be unable to claim the version of the Digital Assets that is supported by the issuer. This could lead to the total loss of value of the Digital Assets held on the Trading Account, as these are no longer supported by their issuer. Subject to the Bank's policy on such events referred to in clause 14.1 the Bank shall apply best efforts to procure that the Client will not suffer adverse consequences as a result of a Hard Fork. Notwithstanding the above, the Client has no claims against the Bank in connection with Hard Forks and similar events. Subject to the Bank's policy on such events referred to above, the Bank shall apply best efforts to take any commercially reasonable action in relation to a Hard Fork or similar event as the Bank deems appropriate.
14.5 As the case may be, the Bank may require the Client to provide the Bank with documents, information and instructions within a specified deadline in order to cause Digital Assets allocated to the Bank and/or any Sub-custodian as part of a Hard Fork in respect to the Client's position in any Digital Assets to be transferred to a specified DLA or exchange, at the sole risk of the Client.
15. Risk Allocation
15.1 Using the Service involves significant risks, which the Client must be aware of and accept before accessing the Service. By using the Service, the Client acknowledges and accepts the risks described in the Investment and Risks Warning disclosure, and the Digital Assets risk disclosure available on the Bank's Website (the "Digital Assets Risk Disclosure"), as may be updated or supplemented from time to time. The Digital Assets Risk Disclosure is attached hereto and forms an integral part of this Agreement.
15.2 The Client bears all risks related to any transactions in digital assets, including the counterparty risk (i.e., the creditworthiness of the Bank as custodian and/or the creditworthiness of any Sub-custodian), the risk that the issuer will default on its obligations, the foreign exchange risk (depending on the Client's reference currency and on the currency or cryptocurrency in which the Digital Assets can be acquired), all risks described in the Digital Assets Risk Disclosure, as well as all risks described in the Investment and Risks Warning Disclosure, which the Client acknowledges having received, read and understood.
15.3 The Offer Documents may contain disclosures and risk warnings about the Digital Assets or the issuers. Such disclosures and risk warnings are important and should be reviewed carefully by the Client before investing in the Digital Assets. By instructing the Bank to execute any Transactions under the Agreement, the Client represents and warrants that they have understood and accepted all risks related to such Transactions, as may be described in the Agreement, the Offer Documents, and/or in the Digital Assets Risk Disclosure.
16. No offer or advice
16.1 The Client is aware that the Bank has no knowledge of the Client’s personal situation, and in particular their financial situation, or only has partial knowledge thereof. The fact that the Bank agrees to execute a Transaction does not mean that the Bank recommends that Transaction or considers that Transaction appropriate or suitable for the Client. The Bank does not examine the appropriateness and/or suitability of the Transactions that the Client initiates. The Bank does not provide investment, legal or tax advice and does not represent that the Service and/or any Digital Assets are suitable and/or appropriate for the Client. The Client's investment decisions shall be based exclusively on the Client's own assessment of their financial situation and investment goals, as well as on their own personal interpretation of the information available. The Client is solely responsible for such decisions and should seek appropriate external legal and financial advice before taking the decision to invest in Digital Assets. The Client acknowledges that the Bank does not guarantee any profit, nor any protection against loss in connection with the use of the System and Digital Assets.
16.2 The Client shall carefully review their personal (in particular financial and tax) situation, tolerance for risk, investment objectives and other relevant circumstances in order to assess that purchasing or selling Digital Assets is suitable. The Client will only invest in assets that they can afford to lose without having to change their standard of living, and the Client will cease using the Service if their personal situation no longer permits it. The Client understands that they shall not carry out Transactions if they are seeking a regular or a safe return. The Client further agrees that Transactions are not suitable for any investment strategy seeking or aiming to achieve capital preservation, and under no circumstances for projects such as retirement projects.
17. Limitations and restrictions
17.1 The Clients who, by reason of their domicile or for any other reason are subject to foreign regulations prohibiting or restricting access to the Service are not permitted to either access or use the Service. More generally, the Bank is not offering the Service in any country or jurisdiction in which such offering or availability would be considered unlawful or would otherwise violate any applicable law or regulation, or which would require the Bank to amend the Agreement or modify partially or entirely the Service in any way, or which would require the Bank to make any additional filing with, or take any additional action with regard to, any governmental, regulatory or legal authority (in each case an "Excluded Jurisdiction"). The Bank is not offering the Service to Clients residing or being otherwise subject to the laws or regulations of any Excluded Jurisdiction. The Bank does not monitor the laws and regulations in the Client's country of residence and/or country from which the Client accesses the Service and it is the Client's responsibility to comply with these laws and regulations prior to using the Service and to inform the Bank about whether such country is an Excluded Jurisdiction.
17.2 In the event of a market disruption or force majeure event, the Bank may suspend access to the Service or prevent the Client from completing any actions via the Service. Following any such event, the Client acknowledges that prevailing market rates may differ significantly from the rates available prior to such event. If, in the context of a Transaction, the Client has accepted a price made available by the Bank was incorrect, the Bank reserves the right to make the necessary corrections and revise the Client's Transaction accordingly (including charging the correct price) or to cancel the Transaction and refund any amount received, and cannot be held liable for this. The Client hereby accepts any correction of the said price where the Bank has made a correction taking account of the valid price at the time of the error. An incorrect price may in particular be corrected by the Bank in case of market disruption or force majeure events, including any extraordinary situations outside the control of the Bank, such as, without limitation, absence of liquidity, very high volatility, errors in feeds provided by any Liquidity Provider and/or incorrect information supplied by third parties.
18. Exclusion of liability and indemnification
18.1 Any liability of the Bank for any loss or damage whatsoever, be they direct or indirect, is excluded to the fullest extent permitted by applicable law, including any loss or damage incurred as a result of (i) accessing the Bank's System or Website, (ii) using the information and services available on the Bank's System or Website, (iii) the inability to access or use any information or services available on the System or Website, (iv) the unavailability of prices with respect to Digital Assets, or the inappropriate character of certain prices, (v) errors or malfunctions of third party systems, hardware or software, (vi) non-execution, partial or late execution of Transactions, and/or (vii) any Loss Event and/or situations of force majeure.
18.2 If the System is not available (e.g., due to technical problems), the Client must take appropriate steps to reduce any loss or damage, for example by calling the Bank's customer care centre.
18.3 The Client agrees and undertakes to indemnify and hold the Bank harmless from and against any liability, damage, losses, costs or expenses (including reasonable attorneys' fees) which may be incurred or suffered by the Bank as a result of any action performed by the Bank in executing an Order received from the Client hereunder, in particular as a consequence of:
(a) any breach by the Client of any of the representations and/or warranties (in particular as set out in the Agreement, and/or the Offer Documents); or
(b) the Client's negligence, fraud or wilful misconduct.
18.4 The provisions of this Article are without prejudice to, and do not limit, any other provisions of these Specific Terms or Article 11 of the General Terms and Conditions.
19. Amendments to the Service
19.1 Without prejudice to the remaining conditions of these Specific Terms, the Bank may at any time amend the scope of the Service and/or define the terms and conditions for the use of, or access to, the Service, such as:
- minimum and maximum volumes;
- maximum number of Orders;
- maximum number of Transactions.
20.1 The Bank may amend the terms of these Specific Terms at any time with appropriate prior notice.
20.2 Upon discontinuance of the Service, and/or discontinuance of specific Digital Assets, and/or termination of the Agreement for any reason whatsoever in accordance with the terms of the Bank's General Terms and Conditions, and/or upon the Client’s request to close their Trading Account, the Client shall sell all the Digital Assets on the Trading Account by the relevant deadline. In the event where the Client does not sell the Digital Assets on the Trading Account by the relevant deadline, the Bank is entitled to sell such Digital Assets on behalf of the Client at its entire discretion (acting in good faith).
20.3 The Agreement is exclusively governed by Luxembourg law. The place of performance and exclusive place of jurisdiction for any and all disputes in connection with the Agreement is the Grand Duchy of Luxembourg. However, the Bank reserves the right to take legal action against the Client in the courts of competent jurisdiction of the Client’s place of residence or any other competent authority, Luxembourg law remaining exclusively applicable.
Digital Assets Risk Disclosure
This Digital Assets Risk Disclosure provides a description of certain risks associated with the Service and Digital Assets, but does not disclose or explain all the risks involved in the investment in digital assets and/or the use of the service. There may be additional risks that are not foreseen or identified in the Specific Terms or in this Digital Assets Risk Disclosure, including without limitation by the Commission de Surveillance du Secteur Financier, the European Securities and Markets Authority (ESMA), and the European Banking Authority (EBA), as per below:
- ESMA, EBA and EIOPA warning to consumers on the risks of Virtual Currencies4
- EBA warning on virtual currencies5
- CSSF warning regarding virtual currencies6
- CSSF guidance for consumers in the context of virtual assets7
The Bank strongly recommends that the Client seeks professional advice before taking investment decisions.
4 EU financial regulators warn consumers on the risks of crypto-assets (europa.eu)
5 Crypto-assets: ESAs remind consumers about risks | European Banking Authority (europa.eu)
6 CSSF warning regarding virtual currencies
7 CSSF guidance for consumers in the context of virtual assets
1. Incorporation by reference
1.1 All risk disclosures and similar disclaimers set out in the Offer Documents are incorporated herein by reference.
1.2 Capitalized terms used in this Digital Assets Risk Disclosure and not otherwise defined shall have the meaning ascribed to them in the Specific Terms or in the General Terms and Conditions.
2. Risk profile of Digital Assets
2.1 Digital Assets may incorporate a large number of financial and non-financial rights, claims and/or assets, including rights and obligations not usually found in (traditional) financial markets instruments such as equity and fixed income securities. Investors wishing to acquire Digital Assets must carefully review the rights and obligations incorporated in the Digital Assets before taking any investment decisions.
2.2 Digital Assets may, for example, grant their holders the right to request the performance of services (e.g., access to a platform), or serve as means of payment. The fair value of Digital Assets may consequently be extremely difficult to assess and may ultimately prove to be much lower than anticipated. This may in particular be the case for Digital Assets that incorporate a right to the supply of goods or performance of services, as many investors in such Digital Assets will have little need for such goods or services but only acquire the Digital Assets with the expectation that they will be able to sell the Digital Assets back at a profit.
2.3 The value of the Digital Assets is understood to derive primarily from the rights incorporated therein. Because the Client may not be able to exercise such rights, the Client may potentially derive very little benefits from the Digital Assets as long as the Client holds such Digital Assets through the Bank. The Client may, in particular, be unable to seize opportunities, e.g., to redeem the Digital Assets and/or to pay for products and/or services offered by the issuer or third parties.
2.4 In addition, the technical functionalities of a Digital Asset (e.g., the ability to transfer them, to create new Digital Assets, the number of decimals up to which a Digital Asset may be traded, etc.) depend on the smart contract for the relevant Digital Asset. Smart contracts are non-trivial pieces of computer code and their interactions with the relevant Distributed Ledger network are complex. Investors should review and ensure that they understand the functioning of the relevant smart contracts before they invest in a particular Digital Asset.
2.5 There is no guarantee that smart contracts, or even the Distributed Ledger network on which they operate, are bug-free and will function according to the Digital Asset issuer's or the investors' expectations. Furthermore, a Digital Asset issuer may retain the possibility to amend the code of the smart contract at any time. Depending on the rights and obligations incorporated therein, issuers have considerable discretion to manage their Digital Assets and may decide to cancel the Digital Assets and replace such Digital Assets with other forms of evidence or with paper certificates, for example. The Bank is under no obligation to provide custody services for any Digital Asset, paper certificate or other replacement for the Digital Assets.
3. Status of the issuers: limited disclosures and regulation
3.1 The Digital Assets may not be listed on a securities exchange, and their issuer may consequently not be subject to the regime that applies to listed companies. Issuers of Digital Assets may not be subject to a number of important rules designed to protect investors. In particular, issuers may not be subject to the obligation to:
- publish their financial statements in accordance with a recognized accounting standard;
- publish quarterly or half-yearly financial statements;
- inform the public as soon as events susceptible of affecting the price of the Digital Assets occur; and
- disclose transactions by company insiders (e.g., senior management of the issuer).
3.2 Because they may not be listed or admitted to trading on a regulated exchange, multilateral or organized trading facility, the Digital Assets may not be subject to insider trading and market manipulation regulations. Accordingly, the market for the Digital Assets (to the extent one such market develops for the Digital Assets) may be more prone to fraud or insider trading. Due to the lack of regulation regarding transparency of costs and the price formation process, there is a risk of price manipulation. As a consequence, in the absence of such rules and failing oversight of the price formation process, a fair and equitable treatment of information provided to the different participants may not be guaranteed and investors risk not being able to exchange Digital Assets at a fair price.
3.3 The information provided to investors, e.g., in Offer Documents and related sources, may be incomplete or difficult to understand, and may not reflect all the risks associated with the Digital Assets.
4. Risks related to Staking
4.1. Each Distributed Ledger has its own rules and protocols regarding how transactions and operations are validated. These rules and protocols may include mechanisms described as "staking" or similar wording. Although such mechanisms tend to involve users of a Distributed Ledger participating in the validation of transactions by evidencing their stake in the cryptocurrency of the Distributed Ledger, there is no uniform concept of "staking". Depending on the Distributed Ledger, participation in validation mechanisms may involve locking the relevant Digital Assets for a minimum period of time and/or transferring those Digital Assets to a specific Smart Contract. The Bank does not provide advice on validation mechanisms of Distributed Ledgers and has not verified that such mechanisms are safe or function properly. The Client bears the risk that these mechanisms will be compromised or will not function properly. It is the Client's responsibility to understand and perform the verifications the Client deems necessary or appropriate on the validation mechanisms of Distributed Ledgers.
4.2. When instructing the Bank to Stake Digital Assets, if the Client instructs the Bank to Stake Digital Assets with a specific Sub-custodian, the Bank will, on that basis, instruct – in its name, but for the account and at the sole risk of the Client – the relevant Sub-custodian to do what the Sub-custodian considers necessary to Stake the Digital Assets of the Client. Sub-custodians (including third parties appointed by them, such as delegates, custodians and/or validators) may not be regulated in the jurisdiction in which they operate. The Bank will only act as an intermediary and will not control how the Sub-custodian is utilizing the relevant Digital Assets, including whether these Digital Assets are actually participating in validation mechanisms, or whether the Digital Assets have been transferred to third parties, locked, included in a pool or Smart Contract or otherwise disposed of. The Client is therefore responsible for doing his own due diligence on any Sub-custodian and such Sub-custodian's staking services that the Client instructs the Bank to use.
4.3. The Client bears the risk that Sub-custodians (and their delegates or sub-custodians) will be unable to Unstake or otherwise return Digital Assets that have been Staked. In this respect, the Client bears the risk that Digital Assets that the Client decided to Stake will be lost or compromised, including due to actions of the Sub-custodians. Staked Digital Assets may, in certain circumstances and on certain Distributed Ledgers, be subject to so-called "slashing" penalties, which may result in the Digital Assets being destroyed or "burned". These penalties may for example be imposed if they are used to validate transactions and other operations in a way that breaches the rules and protocols of the relevant Distributed Ledger. The Client should expect Sub-custodians to provide their services on an "as is" basis and to have disclaimed any liability in case they are unable to Unstake or otherwise return Digital Assets to the Bank. As a result, if a Sub-custodian is for example unable to return the Client's Digital Assets to the Bank, the Bank may not have any valid claim for the return of such Digital Assets (and may therefore be unable to assign this claim to the Client).
4.4. When the Client instructs the Bank to Stake Digital Assets through a specific Sub-custodian, the Client acknowledges that the Bank has not and does not undertake to perform due diligence verifications on the services of Sub-custodians (including any third parties appointed by them, such as delegates, custodians and/or validators) relating to Staking. Further, the Bank shall be under no obligation to monitor or otherwise verify how such Sub-custodian implements the instructions submitted by the Bank in its name but for the account and at the risk of the Client.
4.5. There is no guarantee that the Client will receive any Reward in respect of Staked Digital Assets. Rewards depend on a number of factors beyond the Bank's control and regarding which the Bank makes no representation. There may for example be a (possibly significant) delay between the moment the Client submits an instruction to Stake Digital Assets and the moment these Digital Assets are actually participating in the validation mechanisms of the relevant Distributed Ledger. Further, Rewards may be influenced by the amount of Digital Assets Staked with a particular validator (or equivalent functions in a given Distributed Ledger), the time of Staking, and a number of other factors. The Client therefore acknowledges that, by Staking his Digital Assets, the Client (a) relinquishes any control on such Digital Assets for a possibly extended period of time, and (b) bears the risk that any Sub-custodian will be unable to Unstake or otherwise return Digital Assets, without any assurance that any Reward will be available and ultimately effectively transferred to the Bank for the account of the Client.
4.6. The tax treatment of Staking and of Rewards may be subject to uncertainties in a number of jurisdictions. The Client is solely responsible for assessing the tax consequences of Staking his Digital Assets and complying with applicable tax laws and practice.
5. Risks related to lending Digital Assets
5.1 When consenting to lend Digital Assets, the Client bears the risk that borrowers will be unable to return Digital Assets that have been lent. In this respect, the Client bears the risk that Digital Assets that the Client decided to lend will be lost or compromised, including due to actions of the borrowers. The Client should expect borrowers to provide their services on an “as is” basis and to have disclaimed any liability in case they are unable to return Digital Assets to the Client. As a result, if a borrower is for example unable to return the Client’s Digital Assets, the Bank may not have any valid claim for the return of such Digital Assets (and may therefore be unable to assign this claim to the Client). In the event the Client requires the return of lent Digital Assets, such return will require a minimum delay of 12 hours. An allocation method is used to assign which Client will be borrowed from in every transaction. From a legal standpoint, the Client transfers the legal title to the Digital Assets during the lending period, yet the Client acquires a legal claim on the collateral held by the Bank for the Client. The Bank ensures that there is sufficient collateral of a certain quality. The collateral is usually liquid and readily marketable; common forms of collateral are cash or financial instruments. The collateral is adjusted daily to ensure there is at least 100% of the value of the lent Digital Assets. In the unlikely event of the Bank’s insolvency or other cases in which the Bank or the ultimate borrower is unable to return the Digital Assets, the Client can claim the collateral held in the name and for the account of the Bank.
5.2 For the duration of the lending period, the Client may not be able to exercise rights of ownership or receive other forms of compensation, e.g., airdrops, on the lent Digital Assets.
5.3 Aside from whether the Digital Assets are lent or not, the Client is always exposed to price risk on the Digital Assets. The price of Digital Assets can be extremely volatile and unpredictable and, combined with inherent difficulties of valuing Digital Assets reliably, can result in significant losses in a short time. This risk continues to exist where those Digital Assets are lent.
5.4 In the event of the default by or liquidation of a counterparty in a Digital Assets lending transaction, a number of risks may arise. These include (i) the value of the collateral may be negatively correlated with the value of the lent Digital Assets post the event of a default by a borrower. In such an event the value of the collateral may be less than the value required to regain the full value of the lent Digital assets. (ii) the liquidity of the collateral may not be sufficient to allow the Bank to regain the full value of the lent Digital Assets.
5.5 The Bank will not make any assessment on the appropriateness or suitability of Digital Assets lending for the Client.
6. Valuation issues | Volatility | No or limited liquidity
6.1 The value of Digital Assets may change significantly (even on an intraday basis) and movements on the price of the Digital Assets may be unpredictable.
6.2 While the volatility of the value of Digital Assets is (perceived as) high, changes and advances in technology, fraud, theft and cyber-attacks and regulatory changes, among others, may increase volatility further – elevating the potential for investment gains and losses. In addition, Digital Assets lack the historical track record of other financial instruments, currencies or commodities such as gold that could guide if current levels of volatility are typical or atypical. In any event, past performance is no indication or guarantee of future performance.
6.3 Investments in Digital Assets and in cryptocurrencies are deemed highly speculative investments. Digital Assets and cryptocurrencies are subject to high volatility, i.e., the price of Digital Assets or of cryptocurrencies may rapidly go down as well as up, on any given day. The movements of the Digital Assets and of cryptocurrencies are unforeseeable. The Client acknowledges that Digital Assets and cryptocurrencies are not supervised by authorities or institutions such as central banks and that, therefore, there is no authority or institution which may intervene to stabilize the value of Digital Assets or cryptocurrencies and/or prevent or mitigate irrational price developments. In addition, Digital Assets and cryptocurrencies are generally not backed by any currencies issued by a government, or any physical commodities or any precious metals, and their value is therefore based principally on the trust that owners and users place in Digital Assets and cryptocurrencies. The risk of substantial or total loss in purchasing or selling Digital Assets exists. The Client acknowledges and agrees that they shall access and use the Service at their own risk.
6.4 Investments in Digital Assets and in cryptocurrencies are susceptible to irrational bubbles or loss of confidence, which could collapse demand relative to supply, e.g., because of unexpected changes imposed by the software developers or others, a government crackdown, the creation of superior competing alternative currencies, or a deflationary or inflationary spiral. Confidence might also collapse because of technical problems, for instance if significant amounts of Digital Assets are lost or stolen or if hackers or governments are able to prevent any transactions from settling.
6.5 The market for the relevant Digital Assets may experience periods of decreased liquidity or even periods of illiquidity. The prices made available by the Bank via the System for the Client to purchase or sell Digital Assets are based on feeds provided by one or several Liquidity Providers. One single Liquidity Provider may be the sole source of liquidity for the trading of Digital Assets via the System, creating a higher illiquidity risk. In the event that the Bank is unable to trade the Digital Assets at a certain time or permanently (if the Bank has not found a suitable market, trading platform or counterparty to trade Digital Assets), the Client will not be able to purchase or sell Digital Assets. Furthermore, a lower liquidity may result in very rapid and hectic price movements, in wider spreads and/or in higher rejection rates. Under certain market conditions, the Client may find it difficult or impossible to liquidate a position. This can occur, for example, if there is insufficient liquidity in the market and the Bank is consequently not able to (a) provide prices for the Client to purchase or sell Digital Assets and/or (b) execute any Orders or Transactions. The Client’s ability to purchase or sell Digital Assets as well as to compare the prices of Digital Assets may consequently be limited.
7. Interdependence with Cryptocurrencies | Technology Risks
7.1 Digital Assets are instruments that rely on the Distributed Ledger technology to be recorded and transferred. The acquisition of Digital Assets, as well as their transfer on a Distributed Ledger may be subject to fees payable in cryptocurrencies. Digital Assets are therefore usually in a relationship of interdependence with cryptocurrencies.
7.2 The Distributed Ledger technology, on which the functioning of the Digital Assets and cryptocurrencies is based, is still at an early stage and best practices are still to be determined and implemented. The Distributed Ledger technology is likely to undergo significant changes in the future. Technological advances in cryptography, code breaking or quantum computing, etc., may pose a risk to the security of Digital Assets and cryptocurrencies. In addition, alternative technologies to certain cryptocurrencies could be established, making the relevant cryptocurrency less relevant or obsolete. If the Digital Assets are traded on a Distributed Ledger that becomes less relevant or obsolete, this could negatively affect the price and the liquidity of the Digital Assets.
7.3 The functioning of the Digital Assets and of cryptocurrencies relies on open-source software. Developers of such open-source software are not employed or controlled by the Bank or the Sub-custodians. Developers may introduce weaknesses and programming errors into the open-source software or may stop developing the open-source software (potentially at a critical stage where a security update is required), keeping Digital Assets or cryptocurrencies exposed to weaknesses, programming errors and threats of fraud, theft and cyber-attacks.
7.4 Distributed Ledger networks have experienced a surge in the number of transactions over the last few years. An increasing number of transactions coupled with the inability to implement changes to Distributed Ledger technology may result in a slower processing time of Transactions (potentially days to verify a Digital Asset transaction) and/or a substantial increase in the transaction fees paid to so called "miners" or "validators" of cryptocurrencies for facilitating the processing of Digital Asset transactions. This may limit the Bank's ability to process Transactions and lead to an increase of the fees.
7.5 Since there is no central body (e.g., a central bank or a government agency) overseeing the development of the Distributed Ledger technology, the functioning of Distributed Ledgers, as well as further improvements of such functioning (e.g., ability to increase number of transactions, reduce processing time, reduce transaction fees, implement security updates), relies on the collaboration and consensus of various stakeholders, among others, developers enhancing the open-source software related to cryptocurrencies or so called "miners" facilitating the processing of transactions. Any disagreement among stakeholders may result in a Hard Fork. Hard Forks may lead to the instability of a specific version of a relevant Distributed Ledger. In addition, Hard Forks or the threat of a potential Hard Fork may prevent the establishment of Digital Assets as a viable alternative to the way assets are traditionally traded. Hard Forks or the potential of a Hard Fork may limit the Bank's ability to process Transactions and lead to an increase in fees.
7.6 The particular characteristics of Digital Assets (e.g., they only exist virtually on a computer network, transactions in Digital Assets are usually not reversible and are done largely anonymously) make it an attractive target for fraud, theft and cyber-attacks. Various tactics have been developed (or weaknesses identified) to steal Digital Assets or disrupt the underlying Distributed Ledger technology, including e.g., the "51% attack" where persons with malicious intents may take control over a relevant Distributed Ledger network by providing 51% of the computer power in the relevant Distributed Ledger network, or the "denial of service attack" where persons with malicious intent attempt to make the relevant Distributed Ledger network's resources unavailable by overwhelming it with service requests. The Client is directly exposed to fraud, theft and cyber-attacks for the following reasons: (i) any high profile losses as a result of such events (e.g., bankruptcy of the then largest bitcoin exchange Mt. Gox in February 2014) may raise scepticism over the long-term future of Digital Assets and may prevent the establishment of Digital Assets as an accepted way to represent assets, and may increase the volatility and illiquidity of the relevant Digital Assets; (ii) any loss resulting from a Loss Event shall be borne exclusively by the Client.
7.7 Digital Assets and cryptocurrencies only exist virtually on a computer network and have no physical equivalent. Establishing a value for Digital Assets is difficult as the value depends on the expectation and trust that cryptocurrencies can be used for future payment transactions and as a medium of exchange. Among others, persistent high volatility, changes and advances in technology, fraud, theft and cyber-attacks and regulatory changes may prevent the establishment of cryptocurrencies as an accepted long-term medium of exchange potentially rendering cryptocurrencies worthless. Due to the relationship of interdependence between the Digital Assets and cryptocurrencies, this could affect the price and liquidity of the Digital Assets.
7.8 The technologies underlying Digital Assets and the services relating to the creation, storage and transfer of Digital Assets are particularly innovative but recent so that they may be vulnerable. As a consequence, they may expose users to lasting or temporary system disruptions, hacking attempts, problems relating to activity peaks, etc. While the market for Digital Assets may be deemed open during the Availability Period, during periods of disruption, holders of Digital Assets may not able to carry out transactions at the desired moment and may thus suffer considerable losses due to the fluctuations in value during such periods. For these reasons, the Bank declines any responsibility if the System no longer permits Clients to execute such transactions, in particular, outside the Bank’s normal business hours.
8. Legal and Regulatory Uncertainty | Bankruptcy Treatment
8.1 Digital Assets have been in existence for only a few years and various regulatory bodies have or are in the process of forming a view on required legal or regulatory actions relating to Digital Assets (e.g., regulations concerning KYC, anti-money laundering and counter terrorist financing, taxation, consumer protection, reporting, publicity requirements or capital controls, as well as the civil law characterization of Digital Assets). Any forthcoming legal or regulatory actions may result in the illegality of Digital Assets or the implementation of controls relating to Transactions in (and therefore liquidity of) some or all of the Digital Assets. In addition, control mechanisms may increase Digital Assets' transaction costs significantly. By using the Service and trading Digital Assets, the Client bears the risk related to the uncertainty as to the legal, regulatory and tax treatment of Digital Assets and/or Transactions. Clients should be aware that holding Digital Assets may have tax implications, such as value added tax or capital gains tax, and should consider whether tax liabilities apply in their country when using Digital Assets.
8.2 The treatment of Digital Assets in a bankruptcy or similar event has not been conclusively determined and there are no court precedents or published practice of regulatory authorities and bankruptcy administrations with respect to Digital Assets, so that the position is likely to evolve in the future. Whether Digital Assets held in custody by the Bank (whether directly or through Sub-custodians) for the account of the Client can be considered as "deposited assets" and, hence, be segregated in the event of bankruptcy of the Bank, depends on a number of factors. Regulatory practice, court decisions, accounting rules and standards, as well as the features of Digital Assets and the manner in which custody by the Bank or by a Sub-custodian is operated may influence the treatment of Digital Assets in a bankruptcy or similar event. Although the Bank expects that most if not all Digital Assets for which it provides custody services should be segregated in the event of a bankruptcy of the Bank, there is no guarantee that this will indeed be the case. Investors who acquire and hold Digital Assets through the Bank accept the risks resulting from any bankruptcy or insolvency event affecting the Bank and/or any Sub-custodian, depending on the type of Digital Assets involved and the evolving legal and regulatory practice related to the treatment of Digital Assets. Ultimately, the Client may not benefit from investment guarantee schemes, and in such a case the Client risks losing their entire investment.
9. Privacy | Public nature of Distributed Ledgers
9.1 Investors should be aware that any purchase and sale of Digital Assets may be recorded in a public Distributed Ledger and may therefore be visible to the public.
9.2 Distributed Ledgers on which Digital Assets are issued and/or recorded is neither the property of, nor under any control of the Bank or the Sub-custodians. Information available on the respective Distributed Ledgers may be processed, exploited or misused by third parties, including in unforeseen ways.