Switzerland’s FINMA Issues ICO Guidelines

Blockchain, ICO News, Investing, News, Regulation | February 16, 2018 By:

The Swiss Financial Market Supervisory Authority FINMA issued guidelines today that set out how it intends to apply financial market legislation. The result: some ICOs will be treated as securities.

FINMA claimed a “sharp increase” in the number of initial coin offerings (ICOs) planned or executed in Switzerland, and has been inundated with inquiries on them. The Swiss regulator is one of a growing number of bodies that are trying to devise rules to govern the essentially lawless financial instruments.

As such, FINMA is publishing guidelines which complement its earlier FINMA Guidance 04/2017, setting out how it intends to treat inquiries from ICO organizers.

Financial market law and regulation are not applicable to all ICOs and circumstances dictate each must be considered on a case-by-case basis. FINMA noted there is no ICO-specific regulation, nor is there relevant case law or consistent legal doctrine.

In assessing ICOs, FINMA said it will focus on the economic function and purpose of the tokens  issued. The key factors are the underlying purpose of the tokens and whether they are already tradeable or transferable.

At present, there is no generally recognized terminology for the classification of tokens either in Switzerland or internationally. FINMA categorises tokens into three types, but hybrid forms are possible:

Payment tokens are synonymous with cryptocurrencies and have no further functions or links to other development projects. Tokens may in some cases only develop the necessary functionality and become accepted as a means of payment over a period of time.

Utility tokens are tokens which are intended to provide digital access to an application or service.

Asset tokens represent assets such as participations in real physical underlyings, companies, or earnings streams, or an entitlement to dividends or interest payments. In terms of their economic function, the tokens are analogous to equities, bonds or derivatives.

On the basis of the above-mentioned criteria (function and transferability), FINMA will handle ICO enquiries as follows:

  • Payment ICOs: For ICOs where the token is intended to function as a means of payment and can already be transferred, FINMA will require compliance with anti-money laundering regulations. FINMA will not, however, treat such tokens as securities.
  • Utility ICOs: These tokens do not qualify as securities only if their sole purpose is to confer digital access rights to anapplication or service and if the utility token can already be used in this way at the point of issue. If a utility token functions solely or partially as an investment in economic terms, FINMA will treat such tokens as securities (i.e. in the same way as asset tokens).
  • Asset ICOs: FINMA regards asset tokens as securities, which means that there are securities law requirements for trading in such tokens, as well as civil law requirements under the Swiss Code of Obligations (e.g. prospectus requirements).