Switzerland: Finance Regulator Publishes ICO Guidelines; Some ICO Tokens To Be Treated As Securities
Friday saw the 11-page publication of initial coin offering (ICO) guidelines by the Swiss Financial Market Supervisory Authority FINMA. The purpose of the report is for those seeking clarification with respect to regulatory matters that concern ICOs. There currently is no ICO-specific regulation to use as a reference, nor is there relevant case law or consistent legal doctrine.
Prompting the publication of the ICO guidelines was what FINMA described as “a sharp increase in the number of initial coin offerings (ICOs) planned or executed in Switzerland and a corresponding increase in the number of enquiries about the applicability of regulation.”
These most recent guidelines supplement a paper from the Swiss watchdog that was published last year on September 29. This much-shorter report outlined FINMA’s position on ICOs, and proceeded to highlight areas in which ICOs may already be covered by extant financial market regulation.
Marco Santori, arguably the most prominent attorney in the cryptocurrency space, shared invaluable insight after he read through Friday’s publication, which he concluded was “tremendously positive news for the ecosystem.” His comments centred around money laundering and securities regulation; the two bodies of law that FINMA’s analysis identified as “the most relevant to ICOs.”
Prefacing his thoughts on securities, Santori explained how three types of tokens exist under current Swiss law: payment tokens, utility tokens, and asset tokens. There are also hybrid tokens, which can qualify as both a security and a means of payment.
What caught his eye was how FINMA classified utility tokens. For those unaware, these tokens are currently the most popular type of token, and are defined by the Swiss regulator as:
Tokens which are intended to provide access digitally to an application or service by means of a blockchain-based infrastructure.”
What Santori found “interesting” about the guidelines was that FINMA would recognise utility tokens as securities if they either “additionally or only have an investment purpose at the point of issue.” So hypothetically, if these guidelines were legally binding, sales of pre-functional utility tokens would constitute a security in Switzerland.
Another example of when a utility token would classify as a security would be when it shares the characteristics of an asset token, that is, it partly or entirely embodies an investment function. This makes sense, given that asset tokens are securities by default, regardless of whether they are pre-sold of sold directly.
Regarding anti-money laundering (AML), FINMA outlined that what dictates whether a token is bound by AML laws or not is the answer to a subjective mens rea factor. Indeed, if “the main reason for issuing the tokens is to provide access rights to a non-financial application of blockchain technology,” then the token would fall outside of AML regulatory requirements.
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