FINMA publishes Initial Coin Offering (ICO) guidelines
In its media release of 16 February 2018 the Swiss Financial Market Supervisory Authority FINMA published its long-awaited guidance on Initial Coin Offerings (ICO) which defines the minimum information required and principles for requests for negative clearance.
An ICO is a digital form of public fund-raising for entrepreneurial purposes. Blockchain-based “coins” or “tokens” are sold in exchange for cryptocurrencies (e. g. Bitcoin) or FIAT currencies. The token represents a certain value or service that the issuer defines prior to the ICO.
In its media release of 29 September 2017 FINMA already acknowledged the innovative potential of this technology and pointed out to intersections between ICOs and the applicable financial market laws. In its new guidance FINMA rightly points out that generalized statements with respect to the applicability of financial market laws is not possible due to the variety of tokens and ICOs. Instead, every ICO must be assessed individually on a case-by-case basis.
According to FINMA’s press release, the creation of the guidelines was prompted by an increasing number of ICOs taking place within Switzerland, in conjunction with the lack of clarity about how or whether they should be regulated, noting that “creating transparency at this time is important given the dynamic market and the high level of demand.”
FINMA CEO, Mark Branson commented: “The application of blockchain technology has innovative potential within and far beyond the financial markets. However, blockchain-based projects conducted analogously to regulated activities cannot simply circumvent the tried and tested regulatory framework. Our balanced approach to handling ICO projects and enquiries allows legitimate innovators to navigate the regulatory landscape and so launch their projects in a way consistent with our laws protecting investors and the integrity of the financial system”.
FINMA writes that currently there is currently no ICO-specific regulation in place or “consistent legal doctrine” for handling ICOs in the country.
In order to assess future ICOs and determine which laws apply, FINMA says it will break ICO tokens into three categories: payment tokens, utility tokens, and asset tokens.
Global regulation of ICOs has been uneven, with China at one end of the regulatory spectrum banning all ICOs in the country in 2017, while others like Singapore and Australia have provided ICO guidelines designed to support ICOs in line with existing legislation, similarly to FINMA’s proposal.
Most ICO regulation globally comes with a warning to investors about the potential of encountering fraud when participating in this relatively new fundraising approach. FINMA’s press release ends by drawing attention to the risks associated with ICOs in terms of the market’s price volatility and the potentially uncertain legal nature of contracts made with Blockchain technology.