The Swiss Financial Market Supervisory Authority (FINMA) issued a new set of guidelines today that outline how it will respond to inquiries from Initial Coin Offering (ICO) organizers using financial market legislation, providing some clarity for those who choose to participate in ICOs.
Indicating that transparency is of the utmost importance, FINMA said that it will respond to ICO inquiries on a case-by-case basis, as not all ICOs may not always be subject to existing regulatory requirements. Currently, there is no specific ICO regulation, and there are no existing legal precedents or case law to which ICOs are specifically subject.
FINMA CEO Mark Branson noted:
“The application of blockchain technology has innovative potential within and far beyond the financial markets. However, blockchain-based projects conducted analogously to regulated activities cannot simply circumvent the tried and tested regulatory framework. Our balanced 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 protecting investors and the integrity of the financial system.”
FINMA will be focusing on the purpose and economic function of the tokens offered by the ICO organizer to assess their status as tradeable or transferable. There are three types of tokens categorized by FINMA (and it should be noted that hybrid combinations of these token classifications may be possible):
- Payment tokens – no function other than cryptocurrency; may become an accepted method of payment in the future; no links to other projects. For ICOs, FINMA will not treat these tokens as securities, but will require compliance with existing anti-money laundering regulations.
- Utility tokens – intended purpose is to provide the holder access to a service or application. For ICOs, there are two ways that FINMA will treat them: in the case of the token granting digital access rights to a service or application, it will not be treated as a security. However, if the token serves another function (either wholly or partially) as an investment, the token will be treated as a security.
- Asset tokens – representation of tangible assets – such tokens can be equated to equities, bonds, or derivatives. For ICOs, asset tokens will be considered securities by FINMA, and will be subject to securities law requirements for trading. They will also be subject to civil requirements per the Swiss Code of Obligations.
The FINMA guidelines also caution investors about the risks for investors who choose to partake in ICOs, saying that tokens procured as part of an ICO can be subject to severe price volatility and uncertainties. FINMA notes that it is “uncertain under current civil law whether contracts executed via blockchain technology are legally binding.” Time will tell, as there are sure to be cases that will set legal precedent for the regulation and handling of blockchain-based contracts in the future.
Disclaimer: No one at The Rodman Law Group practices Swiss Law. The information contained above is strictly for informative purposes only, and should not be considered legal advice by anyone. Please consult with swiss counsel for further clarification.