It is widely known that Switzerland is a leading country when it comes to innovation and the adoption of progressive technology. And in recent years, the country has lost its appeal as secret banking centre of the world and this has had effects on many spheres of its economy so much so that professionals in the fields of law and banking have lost clients and are having to adapt to the changing scenes. In the face of this, Switzerland has kept up with innovation and tech and have been one of the front runners with regards to Blockchain and cryptocurrencies.
The Adoption of ICOs
Even though Initial Coin Offerings have evolved and are tagged with many various nomenclatures these days, they are all ultimately geared towards raising funds for new and existing blockchain technology focused enterprises and Switzerland has been the first nation to issue a detailed and progressive regulatory framework for this new fund raising mechanism.
Through its Financial Market Supervisory Authority (FINMA), the Swiss nation on the 16th of February this year issued some detailed guidelines on how the current laws will apply to ICOs – to be applied on a case by case basis depending on the scope of the project and the inherent characteristics of the tokens being issued.
This move seems like a well-thought-through step in the face of many uninformed statements that have been recently issued by a number of central banks and some hysteria and criticisms from some equally misinformed persons. This move by the Swiss sets an important precedent for other nations who want to be beneficiaries of what blockchain technology and the ICO organisms have to offer. Smart financial sector players in many other countries will be better served and help their countries reap the benefits of new technologies if they are able to pick a few pointers from countries like Switzerland and Japan, to name a few of the very few.
There are however encouraging signs from countries like Estonia, Singapore, Canada and even recently Spain as they have been quite open and willing to enact friendly regulations to help foster innovation and also safe-guard investors from losing funds to fraudulent projects.
Highlights from the Swiss ICO Regulation
- There is no need to enact new laws for ICOs – existing regulations are able to take care of new developments on blockchain, this includes cryptocurrencies and ICO tokens.
- ICO token are to be classified into four different categories;
Payment Tokens; This financial instruments will be excluded from securities laws requirement, but will be subject to Anti Money Laundering (AML) laws.
Utility Token; They will not be considered as securities. As such they will be exempted from the requirements of securitized instruments – this is as long as they are only to be used to grant digital use or access. It is also to be noted that investors should be able to use the tokens as at the time of the ICO. This is explained as being that by the time of the main ICO event of a project, the platform for use must be ready. However, if these tokens bear anything in slight resemblance to an investment instrument with the promise of return by way of interests or dividends, it will be treated as a security.
Asset Token; These will be classified as securities and will have to meet all regulatory requirements of securitized financial instruments. They however should ideally not be considered as a means of payment since AML does not necessarily apply – this could however be a stretch considering the fact that that inherent in the character of blockchain itself is the peer-to-peer (p2p) mechanism which means that individuals could decide whether or not on their own volition to accept these as a means of payments for goods or services they are offering in their private capacities.
Hybrid tokens; these combine the characteristics of two or more of the aforementioned token categorizations and will be treated on a case by case basis depending on the scope of the project and its token use.
The interesting twist to this however is that all the afore-mentioned will only apply to tokens that exist pre or during the ICO. Tokens issued after ICO will most likely be considered securities as such one way to avoid this is to make sure that the process of fund raising is properly named and framed and to avoid words like “sale”, “purchase” etc.
The Swiss Financial Regulator also indicated that its doors are open for entrepreneurs and ICO projects that need clarity about the way forward.
With the influx ICOs and founders shunning traditional venture capitalists (VCs) for the ICO fund raising mechanism, it is expected that more regulatory interests will be seen and it only behoves on various regulators to take proper steps in order not to miss out on the enormous benefits this sector holds in transforming lives, economies and driving innovation.