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Switzerland to Regulate ICOs Using Existing Financial Market Legislation

Switzerland to Regulate ICOs Using Existing Financial Market Legislation

Switzerland’s financial regulator announced that it will apply existing financial laws to initial coin offerings (ICOs) in guidelines published on February 16.

The Financial Market Supervisory Authority (FINMA) published guidelines defining how and when ICOs should be treated under Swiss anti-money laundering and securities laws. According to FINMA’s guideline, the regulator will break down ICO tokens into three categories: payment tokens, utility tokens, and asset tokens. Under the new guidelines, many ICOs will be regarded as securities in the eyes of the law.

FINMA claimed that the need for ICO regulation emerged as a result of a “sharp rise” in cryptocurrency projects. Swiss ICOs raised about $550 mln in 2017, which accounted for about 9 percent of the global market. ICOs also fell into a legal grey area, which allowed them to act in ways which many investors considered unfair.

Zug-based Tezos was the biggest Swiss fundraiser, gathering $232 mln during in 2017 ICO, but has also faced at least a half-dozen class action lawsuits from investors in the US. Many Swiss ICOs, including Tezos, applied for non-profit tax status, which means that funds raised during an ICO may be treated as donations that are not required to be returned.

In the February 16 press release, FINMA CEO Mark Branson wrote that he wants new blockchain technologies to enter Switzerland, but that they “cannot simply circumvent the tried and tested regulatory framework.” The goal of the guideline is to allow “legitimate innovators to navigate the regulatory landscapes” to ensure that their ICOs are consistent with Swiss laws “protecting investors and the integrity of the financial system.”

FINMA notes that the new guidelines aim to “create transparency” and a “consistent legal doctrine” for ICOs at a time when the demand for these products is rising.

With the publication of FINMA’s guidelines, Switzerland joins a host of other nations making efforts to regulate ICOs. The progressive Swiss framework aims to encourage ICOs while ensuring that they are not left in a legal grey zone, similar to legal frameworks announced in Australia, Singapore, Japan, and Gibraltar.

21 Feb 2018

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