Switzerland has a longstanding reputation for research and development. The Swiss Federal Council and the regulator are committed to support Fintech innovations. In light of the popularity of ICOs, the Swiss regulator has reviewed numerous business models in order to apprehend the nature of the ICOs and the charakter of the tokens.
These efforts have now resulted in the publication of an important guidance on the treatment of ICOs and tokens under the existing financial market regulations (https://www.finma.ch/en/news/2018/02/20180216-mm-ico-wegleitung/).
The guidance provides for a helpful clearance of a number of issues. This is particularly welcomed in light of the previous guidance by the Swiss regulator dated 29 September 2017 (https://www.finma.ch/en/documentation/finma-guidance/#Order=4). This guidance mainly highlighted the risks of non-compliance with existing law. It was certainly important to remind some innovators given the revolutionary nature of the blockchain technology that ICOs and tokens do not operate outside of the existing law. However, since the guidance did not include answers, it created legal uncertainty. This legal uncertainty has now been removed to a large extent by the new guidance.
As a rule, the Swiss regulator has chosen a balanced approach in the application of the existing financial market regulations. The most important lessons from the guidance are as follows:
The Swiss regulator bases its assessment on the economic purpose of the agreements and tokens, not on the denomination, or formal legal nature chosen.
Whether already existing tokens are sold, or there is some sort of pre-financing agreed, typically investors are not granted any right to request redemption of amounts invested, or any put option rights to resell the tokens to the issuer. Hence, there is no debt in the meaning of the banking regulations.
Payment tokens fall under the anti-money laundering legislations.
The Swiss regulator confirms that an exemption under the existing anti-money laundering legislation may apply if the main purpose of a utility token that also serves as a means of payment is not financial markets related. This needs to be assessed on a case by case basis. A broad application of this exemption would certainly favour innovation.
The Swiss regulator tends to apply a broad definition of the terms securities. Not only asset tokens, but also utility tokens that additionally have an investment purposes at the point of issue shall qualify as securities. For the time being, the negative impact of this assessment is limited because, under Swiss law, the primary issuance of securities (with the exception of derivatives) does not trigger any license requirements. However, it has a negative impact on secondary trading platforms because trading platforms for securities require a license.
A substantial advantage in choosing Switzerland is the possibility to submit the specific case with the Swiss regulator. Since the Swiss regulator has been swamped by enquiries in the past, the guidance now sets forth a number of details that each application would need to include. While one might question whether all of these details are indeed required in order to assess the specific case, it makes sure that only well-prepared business plans are submitted.