Lindemann Law

Token and DLT Regulation in Switzerland

With the Federal Act on the Adaption of Federal Law to Developments in the Distributed Ledger Technology (DLT Act) and the corresponding Ordinance on the adjustments of the existing law, which came into force on 1. August 2021, and the subsequent license requirement guidelines by the Swiss Financial Markets Authority Switzerland offers an attractive legal and regulatory framework for DLTs.

The FINMA depends the required regulation on the type of Token, i.e. Payment, Utility, Investment Tokens and Hybrid Tokens. The classification of a Token depends on the original intention and not on the possible usage. While the Swiss legislator has introduced new regulations referring to the innovative technology, the regulation mostly refers to the existing law that is now applied to the respective type of Token.

  • Payment Token are an alternative payment method. Examples of payment tokens are Bitcoin (BTC) and Ether (ETH) which is the native currency of the Ethereum platform.
  • Utility Token provide access to access to a good or service offered by the issuer. If the investor wanted to use the Utility Token to buy another product or service, they would first have to exchange it against another currency – legal or crypto.
  • Investment Token are a tokenized version of an asset that embodies a share in the company that issued the Token. While Payment and Utility are not generally considered securities, Investment Tokens are and the regulations on securities trading apply to Investment Tokens.
  • Hybrid Token: Oftentimes Tokens will fall into multiple categories of Tokens, e. g. Utility and Investment Tokens can be used as a payment method. In these cases, the regulation of all of the relevant types of Tokens applies to the Hybrid Token.

The DLT Act introduced relevant legal improvements:

  • Ledger-based securities enable the digitization of shares and other rights
  • DLT / Security Token Exchange as a new form of license for trading venues for digital assets with lower requirements for small trading facilities
  • Easing of requirements for custodians of digital assets
  • Guidelines on the issuing of digital assets in the event of bankruptcy

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