In connection with the sharply increased number of ICO projects in Switzerland on February 16, 2018, the Swiss Financial Market Supervision Service FINMA published principles supplementing the previous version of the ICO Handbook, published in September 2017.
According to the document, the assessment of ICO compliance with the requirements of the legislation on the regulation of financial markets, in particular the Anti-Money Laundering Act (AMLA), should be conducted on a case-by-case basis.
In assessing the ICO, the financial controller will take into account the functions of the tokens and the ability to trade or transfer them. FINMA identified three groups of tokens:
Payment tokens (cryptocurrencies). Such tokens have no other function, except as a means of payment, or links to other projects.
Utility tokens, which provide access to an application or service.
Asset tokens are treated as assets with a real financial component when they receive income from their placement in the form of dividends or interest after their acquisition. In this case, they are similar to shares, bonds or derivatives.
Based on this classification, FINMA considers the ICO as follows:
In the event that the token has the function of a means of payment, the regulator’s requirements are reduced to compliance with anti-money laundering legislation. Cryptocurrency is not considered a security.
Such tokens are not considered securities unless their sole purpose is to provide access to a service or application, and if the token can be used in this way from the time it was released. On the other hand, if tokens are exclusively or partially an investment, FINMA will consider them as securities.
Tokens are securities, which means that their trade must comply with the norms of civil law, as well as the requirements of the Securities Law. Among other things, this means that the ICO must follow the rules that relate to promotional materials, and adequately provide information to investors.
FINMA also recognizes the existence of hybrid ICO forms, for example, if utility tokens can be used as a means of payment. At the same time, ICOs must comply with anti-money laundering legislation.
The wording and content of the published ICO Guide makes it clear that FINMA is extremely concerned about compliance with the Anti-Money Laundering Act. The regulator’s concern is natural, as when using block system systems, financial risks increase. In essence, transactions can be anonymous and without the use of an accredited financial intermediary.
Regulator’s attention also touched on the securities legislation, for example, the obligation to provide reliable and truthful information, which is especially important, since tokens are subject to considerable price volatility.
The published Guidelines once again confirmed FINMA’s interest in the potential of blockchain technologies and the need for a clear but balanced approach to regulating this innovative sphere. FINMA is part of the Working Group on blockchain and ICO, established by the State Secretariat for International Financial Affairs. By the end of 2018, the working group should develop a framework of work and a legislative approach to the ICO and the blockchain.
Write: Richard Abermann