On 14 March 2018 FINMA held its first round table event on their ICO guidelines published on 16 February 2016; further FINMA round tables will follow in Geneva and Lugano later this months. In order to provide transparency relating to information required for a FINMA ICO assessment and to create transparency on how FINMA applies financial regulation relating to ICOs FINMA discussed the core principles of their Giudelines including the various categories of tokens and their classification in light of the Swiss laws relating to securities, banking activities, collective investment schemes and AML.
FINMA applies the follow token categorization:
- Payment tokens are synonymous with cryptocurrencies and have no further functions or links to other development projects. Tokens may in some cases only develop the necessary functionality and become accepted as a means of payment over a period of time.
- Utility tokens are tokens which are intended to provide digital access to an application or service.
- Asset tokens represent assets such as participations in real physical underlyings, companies, or earnings streams, or an entitlement to dividends or interest payments. In terms of their economic function, the tokens are analogous to equities, bonds or derivatives.
FINMA’s analysis indicates that money laundering and securities regulation are the most relevant to ICOs. Projects which would fall under the Banking Act (governing deposit-taking) or the collective investment schemes act are not typical however possible and would require a case-by-case assessment.
FINMA will focus on the economic function and purpose of the tokens (i.e. the blockchain-based units) issued by the ICO organiser. Key factors are the underlying purpose of the tokens and whether they are already tradeable or transferable.
FINMA reiterated that hybrid forms of tokens are possible and that the classification of tokens may change over time. The assessment of the token category will always be made at the time of the FINMA assessment.
Generally the distinction between utility tokens and asset tokens may be made based on objective criteria including the functionality of tokens and the terms and conditions laid out in the white paper. Unlike in some other jurisdictions subjective criteria will not be taken into account.
FINMA reconfirmed their current practice that rulings would typically being issued within 4 to 6 weeks depending on the complexity of the Project. However individual rulings will typically not be made public.
The FINMA presentation slides which were used during the round table will be published on the FINMA website shortly.
Further questions?
The team at LINDEMANNLAW is at your disposal, also by email, as below.
