Switzerland’s financial watchdog, the Swiss Financial Market Supervisory Authority (FINMA), recently published initial coin offering (ICO) guidelines that reveal the regulator will oversee the fundraisers and regulate them either under anti-money laundering laws, and as securities.
The guidelines show FINMA is looking to clarify how token issuers should proceed in the country, as the regulator notes a sharp increase in the number of Switzerland-based ICOs also led to an increase in the number of inquiries about applicable regulations. Per the Financial Times, FINMA already received more than 100 requests for guidance.
The organization’s press release starts by clarifying that financial market law and regulation aren’t applicable to all ICOs, as some may not even be subject to regulatory requirements. As such, circumstances need to be analyzed on a case-by-case basis.
The guidelines reveal that regulations will be based both on the purpose of the issued tokens, as well as whether the tokens are tradeable and transferable at the time of the ICO. Given that there’s currently no recognized terminology for different types of tokens – both in Switzerland and in the rest of the world – FINMA identifies three different types, with hybrids forms being a possibility.
FINMA’s ICO token categories
The regulator goes on to reveal the three different ICO token categories. In the first category are “payment tokens,” which are cryptocurrencies with “no further functions or links to other development projects.” These are essentially tokens that are to be used as a payment method.
In the second category are utility tokens, which will be used to provide digital access to a specific application or service. Finally, there are asset tokens, which represent assets in underlying companies or earning streams, or entitle their holders to dividends or interest payments.
As stated, the regulator will regulate ICOs under anti-money laundering laws, which require financial intermediaries to “establish the identity of beneficial owners,” and as securities, in which case the regulator needs to ensure that market participants can base their investment decisions on a “reliable minimum set of information.” Furthermore, the agency notes trading should fair and reliable.
Taking this into account, FINMA reveals it will handle ICO inquiries according to three different categories, based on the type of tokens they’ll be issuing.
- Payment ICOs (payment tokens): These will be those that issue tokens that are transferable and function as means of payment. They’ll have to comply with anti-money laundering regulations, but won’t be treated as securities.
- Utility ICOs (utility tokens): These will not qualify as securities, as long as their purpose is to confer digital access rights to an application or service. If a utility token functions as an investment in economic terms, it will be treated as a security.
- Asset ICOs (asset tokens): Tokens issued in these ICOs will be seen as securities. This means they’ll be treated like equities or bonds if, for example, they pay holders dividends, or give them rights to earning streams. These will be subject to strict requirements.
The regulator further recognizes ICOs can be included in one or more of the above categories. As such, anti-money laundering laws can, for example, apply to asset ICOs. Commenting on the announcement, FINMA CEO Mark Branson stated:
“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.”
Regulators throughout the world are seemingly starting to support ICOs. As covered by CCN, the financial watchdog for Gibraltar recently announced it is developing legislation for blockchain-based token offerings in its territory. The Spanish government is reportedly also preparing legislation, which might notably include tax incentives to lure blockchain companies into the country.
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