Electronic Money Supervisory Commission

Regulatory Topics

FINMA’s ICO Guidelines impact future ICOs in Switzerland

Facing a rising tide of ICO inquiries, FINMA’s ICO Guidelines provide a more transparent regulatory framework. The guidelines address the regulatory treatment of ICO structures, anti-money laundering regulation and securities law. We offer insight into the guidelines’ impact on future ICOs in Switzerland.

Switzerland saw a clear trend in the rapidly growing numbers of initial coin offerings (ICOs) in 2017. More and more enterprises, particularly blockchain start-ups, are turning to initial coin offerings (ICOs) as a way of raising capital to fund the development of products and services.

In response to the sharp increase in ICO-related inquiries, The Swiss Financial Market Supervisory Authority FINMA recently published a new guidance regarding the regulatory framework of ICOs. We believe that this guidance will ultimately help ICO organizers attract more investors by structuring their ICOs in a compliant and transparent way.

Types of token

FINMA basically distinguishes between three different types of tokens (although hybrid forms are possible):

  • Payment tokens:These are considered standard crypto currencies. They can be used as means of payment for the purchase of goods or services as well as for the transfer of money and values. They are not associated with any other functions or projects.
  • Utility tokens: They provide access to a blockchain-based applications or services.
  • Investment tokens:These tokens represent assets (such as shares of companies, revenues or entitlements to dividends or interest payments). Depending on its design, this type of token is similar to a share, bond or derivative financial instrument.

Legal assessment

FINMA came to the conclusion that it is particularly the Anti-Money Laundering and securities regulations that are concerned with respect to ICOs. Conversely, the Banking Act (“BA”) and the Collective Investment Schemes Act (“CISA”) are typically not concerned.

Based on the functionality of the various tokens FINMA makes the following legal considerations with respect to ICOs:

  • Payment ICOs:Payment tokens fall within the scope of the Anti-Money Laundering Act (“AMLA”) but do not qualify as securities under the Financial Markets Infrastructure Act (“FMIA”) and the Securities Trading and Exchange Act (“SESTA”).
  • Utility ICOs: Utility tokens are basically not qualified as securities provided that they are intended to provide access digitally to an application or service and may be used in this capacity at the moment of issuance. Conversely, if a utility token is also used for investment purposes it is qualified as security.
  • Asset ICOs: Asset tokens are treated as securities by FINMA.

Combinations of the various types are also possible.

FINMA recognizes the innovation potential of ICOs and the block chain technology but also highlights risks that result for investors.