Swiss Authorities Outline Four Flavours of ICOs for Upcoming Regulation

Swiss Authorities Outline Four Flavours of ICOs for Upcoming Regulation

Switzerland has become something of a hub for ICO activity, ranking fourth internationally for ICO investment according to at least one estimate. The municipality of Zug, for instance, has become a favoured destination for ICOs and has earned the nickname ‘Crypto Valley’. 

Last month the Swiss economics minister, Johann Schneider-Ammann, stated that he wanted Switzerland “to be the crypto nation.” And now Finma, the Swiss government body responsible for market regulation, has offered guidelines on how ICOs should proceed, and what regulation they should expect.

Encourage Innovation whilst Protecting Investors

The SEC’s Jay Clayton has said this month that, “I believe every ICO I’ve seen is a security“. The Swiss authorities, on the other hand, appear to be taking a more nuanced approach.

Though they stress that “circumstances must be considered on a case-by-case basis” and that regulation is “not applicable to all ICOs”, they have identified four types of ICO: Payment, Asset, Utility and Hybrid (some combination of the previous three). Each type of ICO will have different legal requirements.

“Payment ICOs” are for tokens which are transferable and can be used for payments. To Finma they are “synonymous with cryptocurrencies.” Though they are subject to anti-money laundering regulations, they are exempt from securities law.

“Asset ICOs” offer repayment to investors in some way, generally through interest or dividends. These are to be entered into the same category of financial assets as bonds and equities. They are subject to securities law and the Swiss Code of Obligations, which outlines certain additional requirements like the format of the asset’s prospectus.

“Utility ICOs” offer tokens which are used within a digital system to access a service. Provided they can “already be used in this way at the point of issue” they will not be considered securities.

“Hybrid ICOs” will exhibit properties of more than one of the above types and be subject to the appropriate regulation for each type. For example, “utility tokens that can also be widely used as a means of payment” would be subject to anti-money laundering requirements.

According to Finma’s CEO, Mark Branson, regulators are aiming to take a “balanced approach” where innovation is protected, but so are investors. “Legitimate innovators” would be supported, he said, “in a way consistent with our laws protecting investors and the integrity of the financial system.