Companies and projects have increasingly relied on the sale of digital assets, or tokens, as a means of fundraising. These tokens generally do not grant the holders an ownership interest in the issuing company or project, but may provide governance rights, access rights or other utility. This has been conducted through public sales known as initial coin offerings (ICOs), proliferation through token generation events (TGEs) or private sales, among other mechanisms. While showing characteristics of traditional methods of fundraising, there are a range of unanswered questions related to the legal classifications of such products. As ICOs and TGEs will usually be distributed online and internationally, there is usually no single legal framework applying to such transaction, and the legal framework of each market in which the tokens may be offered or sold needs to be considered.
Attitude of the country towards ICOs/token sales
The climate towards ICOs in Switzerland is in general good and Switzerland is considered as an attractive jurisdiction for ICOs. In the recent years, some of the larger ICOs took place in Switzerland.
Presence of any explicit regulation on ICOs and the issuance of token/coins
Swiss law does not know an explicit regulation of ICOs and the issuance of token/coins. However, certain aspects fall under financial-market law.
Presence of any explicit restrictions on ICOs or the issuance, distribution and/or transfer of token/coins
No explicit restrictions exist in Switzerland. However, in particular in case tokens qualify as securities, the financial market rules apply including respective restrictions and licensing requirements.
Obligations and requirements to issue token/coins
The procedure to be followed when executing an ICO is set out in the FINMA guideline regarding initial coin offering. In this guideline, FINMA explains the legal framework applicable to ICO’s and how to apply the Swiss Financial Market laws. Further, FINMA issued a guideline regarding stable coins in 2019, giving relevance to the money laundering, banking, fund management and financial infrastructure as well as securities trading regulation.
In case tokens are linked to a repayment obligation, the issuance may qualify as accepting deposits from the public (or advertising of such activity) which may trigger a banking license requirement.
If tokens of an ICO are to be qualified as securities, the financial market rules will apply accordingly. In particular the public offering of such tokens which qualify as securities may trigger the prospectus requirement under FinSA.
The law on collective investment schemes including respective licensing requirements may apply in case the funds accepted in the context of an ICO are managed by third parties.
If a trading platform aims to deal in asset tokens, in addition to payment and utility tokens, the asset tokens probably qualify as securities as defined in the FinMIA. Platform securities trading is regulated by the FinMIA. According to the FinMIA, trading platforms require a licence to operate as an exchange or multilateral trading system to trade in securities in this way. Under the law, only regulated institutions, but not private persons, may be admitted participating in an exchange or MTF. OTFs on the other hand, allow discretionary bilateral or multilateral securities trading. OTFs may be operated by banks or securities dealers and, unlike exchanges and MTFs, may also admit private clients. Supply of and demand for tokens come together on trading platforms, for example in an order book. Centralised trading platforms manage clients’ crypto currency assets in their own wallets and have access to their private keys. They often hold client funds in a national currency or crypto currency over the long term. The funds taken (legal tender and crypto assets) may, under certain circumstances, qualify as public deposits, which require a licence under the BankA according to supervisory law. Decentralised trading platforms do not manage wallets for their clients. As a result, they only fall under banking law in certain aspects and only in specific instances, for example through smart contracts with a processing or repayment function. As long as they have power of disposal over the traded assets (for example by being able to release or stop transactions or orders), they are subject to AMLA.
Classification of token/coins in the jurisdiction
As set out in its ICO guidelines, FINMA defines three types of tokens: payment, utility, and asset tokens:
Payment tokens (for example crypto currencies) are tokens which are intended to be used, now or in the future, as a means of payment for acquiring goods or services or as a means of money or value transfer. The issue of payment tokens is subject to AMLA provisions as a rule.
FINMA defines utility tokens as tokens intended to provide access digitally to an application or service by means of a blockchain-based infrastructure. The issue of utility tokens does not require supervisory approval if the digital access to an application or service is fully functional at the time the tokens are issued.
Asset tokens represent assets, such as a debt or equity claim on the issuer. In terms of their economic function, therefore, these tokens are analogous to equities, bonds, or derivatives. The self-issue of asset tokens that qualify as securities does not require FINMA approval but is governed instead by the prospectus requirements of the Swiss Code of Obligations (“CO”).
Hybrid tokens are also possible: a token that simultaneously counts for utility and payment for example.
Presence of a duty to publish a prospectus bevor offering token/coins to investors
In principle, the requirement to publish an approved prospectus applies to all public offerings in or into Switzerland and to all securities (including DLT securities) that are to be admitted to trading on a trading venue or a DLT trading facility in Switzerland. However, FinSA contains a series of exemptions and there is, for example, no requirement to prepare a prospectus if the public offering is addressed exclusively at professional investors or if it is directed at fewer than 500 investors.
Presence of AML/KYC requirements that are needed to be fulfilled regarding (i) the initial issuance of token/coins and (ii) any following transfer of token/coins to third parties
Anyone who provides payment services or who issues or manages a means of payment is a financial intermediary subject to the AMLA. The issuing of payment tokens constitutes the issuing of a means of payment subject to AMLA as long as the tokens can be transferred technically on a blockchain infrastructure. This may be the case at the time of the ICO or only at a later date.
In the case of utility tokens, anti-money laundering regulation is not applicable as long as the main reason for issuing the tokens is to provide access rights to a non-financial application of blockchain technology.
Anti-money laundering regulation gives rise to a range of due diligence requirements including the requirement to establish the identity of the beneficial owner and the obligation either to affiliate to an SRO or to be subject directly to FINMA supervision.
Under current FINMA practice, the exchange of a crypto currency for fiat money or a different crypto currency falls under the scope of application of AMLA. The same applies to the offering of services to transfer tokens if the service provider maintains the private key (custody wallet provider).
Additional comments regarding (i) the legal situation for ICOs/token/coins and (ii) any following transfer of token/coins to third parties
FINMA provides feedback on specific requests about ICOs on a case-by-case basis
Market size for ICOs/token sales and existence of any previous regulated ICO/token sales in the jurisdiction
No reliable data available.
Additional comments regarding the economic situation for ICOs/token sales or what companies must be aware of in this business area