In line with a regulatory trend that’s spreading across the globe, today saw Swiss authorities announce that they intend to police Initial Coin Offerings (ICOs) either under its existing anti-money laundering or Securities regulations.
According to Reuters, Switzerland is the home of around a quarter of the $3bn marker for ICOs, so the practicalities of its stance will be keenly observed, especially as the statements coming from the Swiss Financial Market Supervisory Authority (FINMA) appear to resonate with those made by the US Securities and Exchange Commission (SEC)in recent weeks, which has sought to bring ICOs under its purview over recent months.
As we have previous outlined, the SEC believes many ICOs are analogous to share offerings, and believes that they should operate under existing rules. The FINMA statement echoes that stance by saying that blockchain-based offerings that operate in a similar way to shares “cannot simply circumvent the tried and tested regulatory framework,” (FINMA) chief Mark Branson said in a statement.
Though it intends to look at offerings on case-to-case basis, FINMA’s guidelines makes it clear where it is setting its definitions. Instead of developing bespoke legislation for the new technology, it will focus on what it sees as the “economic function and purpose” of the tokens issued by the ICO organiser, with an eye to identifying their “underlying purpose”. The document identifies three types of ICO, with the caveat that some will be hybrids: ‘Payment tokens’, ‘Utility tokens’, and ‘Asset tokens’ – the last of which it defines as “analogous to equities, bonds or derivatives”.
It clearly states that Payment tokens, those designed to operate as currency, must abide by its existing anti-money laundering laws. Utility tokens will not be treated as Securities “only if their sole purpose is to confer digital access rights to an application or service,” and – importantly – “if the utility token can already be used in this way at the point of issue [our emphasis]”. Those it judges to be asset tokens will fall under both its legislation, and the Civil law dictated by the Swiss Code of Obligations.
While FINMA’s Mark Branson said the Swiss “approach to handling ICO projects and enquiries allows legitimate innovators to navigate the regulatory landscape and so launch their projects in a way consistent with our laws”, there is a fear that dealing with ICOs under existing law rather than bespoke legislation could stifle innovation in cryptocurrency projects.
Kevin Murcko, CEO of CoinMetro, said that while “by embracing regulation, Switzerland’s financial watchdog have delivered a positive show of faith in the cryptocurrency space… any long-term regulation must be forged with input from both lawmakers and the businesses operating in the marketplace – as it is with other parts of the financial services space.”
“Rules cannot be developed successfully in isolation,” he continued, noting that Switzerland “has the potential to be a benchmark for how the UK and EU approaches regulation of crypto in the coming months and years, so it is absolutely critical that it gets its approach right.”
He concluded by saying:
“Bringing all sides to the table to develop rules that protect investors as well as nurturing the infant market is essential, rather than a heavy-handed approach that risks snuffing out a multi-billion dollar investor segment before it’s even got going.
Japan is another possible model for how to do things correctly. The country made digital currencies legal tender last year, and has a thriving crypto trading environment driven by an efficient and structured framework of regulation.”