Switzerland: Swiss Financial Regulator FINMA Releases Regulatory Guidelines For Initial Coin Offerings (ICO)

Last Updated: 21 February 2018
Article by Daniel Flühmann

With Switzerland continuing to be among the dominant jurisdictions for establishing and developing blockchain-driven businesses, many of which are financed by way of ICOs, the Swiss Financial Market Supervisory Authority FINMA on 16 February 2018 published a guidance paper setting forth in broad strokes its intentions for future regulatory practice in this area. FINMA also clarified its expectations with respect to the requirements for no-action letter requests or more generally regarding enquiries concerning the application of Swiss financial market laws in the context of specific ICO projects.

The "FINMA Guidelines for Enquiries Regarding the Regulatory Framework for Initial Coin Offerings (ICOs)" published on 16 February 2018 (FINMA ICO Guidelines1) follow FINMA's initial high-level guidance paper on the regulatory treatment of initial coin offerings published in September 2017 (FINMA Guidance 04/2017). The FINMA ICO Guidelines aim to inform prospective and existing market participants as to how FINMA intends to respond to enquiries regarding the Swiss legal and regulatory framework for ICOs. The Guidelines also summarise the principles FINMA applies to assess individual projects under the various Swiss financial market laws, in particular anti-money laundering and securities regulation.

FINMA Continues to Evaluate Projects on a Case-by-Case Basis

The FINMA ICO Guidelines reiterate the point made in previous guidance: FINMA will consider proposed ICO projects on a case-by-case basis. The Guidelines provide a general framework. However, FINMA does not consider it feasible, given the dynamics of the market, to stipulate generally applicable, hard-andfast rules. FINMA also emphasises that it will assess ICO projects based on a substance over form view taking into account the underlying economic purpose. Based on these key statements, it will in our view continue to be good practice to present Swiss ICO projects to FINMA for no-action confirmation or confirmation of the applicable regulation. FINMA seeks however to streamline this process and the FINMA ICO Guidelines include in their annex a questionnaire outlining the key factual elements FINMA requires to assess a regulatory enquiry in connection with a planned ICO. Enquiries can be submitted to FINMA in a Swiss official language (German, French or Italian) or, notably, in English.

Categories of Tokens

Recognising that there is no established categorisation of blockchain tokens/coins in the market, the FINMA ICO Guidelines outline a basic system with three main categories of economic token functionalities, which can be combined to form hybrid models:

  • Payment tokens (Zahlungs-Token): Tokens which are factually used or intended by the issuer to be used as a means of payment for goods or services or as a means for the transfer of money or value. In FINMA's categorisation, payment tokens are not coupled with any claim against the issuer. FINMA considers this category to be synonymous with the term "cryptocurrencies" in their pure form (such as Bitcoin).
  • Utility tokens (Nutzungs-Token): Tokens intended to provide access to a digital application or service which is rendered using a blockchain.
  • Asset tokens (Anlage-Token): Tokens representing a specific asset or claim, in particular a debt claim against the issuer or an equity position/ corporate membership right in the issuer. By way of example, asset tokens may – economically – represent a share, bond or derivative instrument, entailing a promise by the issuer to share a proportional part of future profits or other fund flows with the tokenholders. Tokens intended to enable physical assets to be traded on the blockchain also fall into this category.

Further to this basic categorisation, the FINMA ICO Guidelines distinguish between tokens immediately issued in the context of the ICO fundraising on an existing blockchain and the mere promise to investors of a future token issuance and allocation where such tokens or the underlying blockchain are still in development (referred to as "pre-financing"). Furthermore, FINMA refers to a "pre-sale" as an initial distribution of tokens entitling investors to acquire different tokens at a later point in time.

Tokens and Securities Regulation

So far, there was no clear position under Swiss law as to what types of tokens would qualify as securities, with many practitioners leaning towards the view that a security token must be coupled with some form of right or claim against the issuer.

The FINMA ICO Guidelines refer to the investor and market protection purposes of Swiss securities regulation and note that FINMA is bound by the definition of securities in the Financial Market Infrastructure Act (FMIA). The definition includes certificated securities (Wertpapiere) or uncertificated securities (Wertrechte) as well as derivatives and intermediated securities that are standardised and suitable for mass trading, requiring that they be publicly offered in a standardised structure and denomination or are placed with more than 20 clients (except if they are created specifically for individual counterparties). FINMA further states that the securities register (Wertrechtebuch) required for the creation of uncertificated securities can be kept in digital form on a blockchain.

On this basis, FINMA qualifies the individual token categories as follows:

  • Payment tokens: FINMA does not consider payment tokens to qualify as securities (consistent with its practice regarding Bitcoin and Ether). However, FINMA notes that this view might have to be revised if mandated by future legislative action or case law.
  • Utility tokens: As long as their function is limited to providing a right of access to a digital application or service and the token is actually usable in this sense at the point in time of issuance, utility tokens are not seen as capital market instruments and consequently not as securities. However, if the economic purpose of the token is an investment, at least partially, FINMA will treat utility tokens as securities.
  • Asset tokens: FINMA considers asset tokens to be securities, specifically if they represent an (uncertificated) security or a derivative. FINMA further notes that claims in the context of pre-financings and pre-sales can qualify as securities. In each case, the prerequisite for a security qualification is that the tokens are standardised and suitable for mass trading.
  • The FINMA ICO Guidelines do not specifically address asset tokens referring to specific physical assets in the context of securities regulation. In our experience, these types of tokens have so far not been treated as securities, but this remains to be clarified given the categorisation now established by FINMA. It is also noteworthy, even though FINMA generally does not consider utility tokens to be securities, that it may qualify them as such if it believes them to include an investment function. This caveat appears to align FINMA's position on utility tokens to some extent with recent communications by the US SEC in respect of the Munchee Inc. ICO project.
  • If a token is qualified as a security, the issuer will need to prepare a prospectus pursuant to the Swiss Code of Obligations, if the tokens represent shares or bonds. Furthermore, if the tokens represent derivatives, the issuer may be subject to a licence requirement as a securities dealer.
  • In addition, although the FINMA ICO Guidelines do not address this point directly, the securities qualification will affect the regulatory requirements for players in the secondary market, e.g. trading or exchange platforms.

To view the article please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
CMS von Erlach Poncet Ltd.
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
CMS von Erlach Poncet Ltd.
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions