The Swiss Financial Market Supervisory Authority FINMA has define the guidelines for startups based in Switzerland, which plan to raise capital through Initial Reel Offerings (ICOs). The guidelines also define the information FINMA needs to deal with such requests and the principles on which it will base its responses, which creates clarity for market participants. The guidelines complement the previous set of rules published in April 2017.
When evaluating ICOs, FINMA will focus on the economic function and purpose of tokens / native currencies. FINMA will also examine whether the tokens are already negotiable or transferable. Since then, there is no generally accepted terminology for the classification of tokens neither in Switzerland nor internationally.
Classification of tokens
FINMA classifies tokens into three types (hybrid forms are acceptable):
• Payment tokens are synonymous with cryptocurrencies and have no other function or connection with other development projects. Tokens may, in some cases, only develop necessary functionality and be accepted as a means of payment over a period of time.
• Utility tokens are tokens intended to provide digital access to an application or service.
• Asset tokens represent assets such as interests in real physical underlyings, companies or streams of earnings, or a right to dividends or interest payments. In terms of economic function, tokens are analogous to stocks, bonds or derivatives.
FINMA’s analysis indicates that money laundering and securities regulation are the most relevant for ICOs. Projects that would fall under the banking law (governing the collection of deposits) or the collective investment law (governing investment fund products) are not typical.
On the basis of the above criteria (function and transferability), FINMA will process ICO requests as follows:
• Payment ICO: 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. However, FINMA will not treat these tokens as securities.
• Utility ICOs: These tokens are not qualified as securities only if their sole objective is to confer digital access rights to an application or a service and if the utility token can already be used in this way at the time of issue. If a utility token functions only or partially as an investment in economic terms, FINMA will treat these tokens as securities (i.e. in the same way as asset tokens).
• Asset ICOs: FINMA considers Asset Tokens to be transferable, which means that there are securities law requirements for the trading of these tokens, as well as civil law requirements under the Swiss Code. obligations (eg prospectus requirements).
In addition, FINMA considers that ICOs can also exist in hybrid forms of the above categories. For example, anti-money laundering regulations would apply to utility tokens which can also be widely used as a means of payment or are intended to be used as such.
When issuing the guidelines, FINMA said it recognizes the innovative potential of blockchain technology and therefore supports the federal government Blockchain / ICO working group in which he participates.
CEO of FINMA, Mark Branson, noted
“The application of blockchain technology has the potential for innovation within and far beyond financial markets. However, blockchain-based projects conducted analogously to regulated activities cannot simply bypass the proven regulatory framework. Our balanced approach to handling projects and ICO inquiries allows legitimate innovators to navigate the regulatory landscape and thus launch their projects in a manner that complies with our laws protecting investors and the integrity of the financial system. .