'Crypto nation' Switzerland issues guidelines to support market

February 16, 2018

Switzerland’s financial supervisor has bucked the trend of global regulators cracking down on cryptocurrencies by announcing guidelines that should help local “initial coin offerings” sold by start-up companies.

The Finma financial authority hopes to support the ICO market and boost new blockchain technologies by clarifying when entrepreneurs will have to apply anti-money laundering and securities laws.

Regulators around the world have taken an increasingly sceptical view of cryptocurrrencies and ICOs, which have been banned in China and South Korea. But the Swiss government believes they could offer an economic opportunity. Johann Schneider-Ammann, economics minister, last month said Switzerland wants “to be the crypto nation”.

Of the 10 biggest proposed initial coin offerings, four have used Switzerland as a base, according to PwC. More than 100 requests for guidance have been received by Finma.

On Friday, Mark Branson, Finma’s chief executive, said its “balanced approach“ to ICO projects would allow “legitimate innovators to navigate the regulatory landscape and so launch their projects in a way consistent with our laws protecting investors and the integrity of the financial system.”

Finma’s move is intended to help the fast-growing crypto industry ahead of a broader review of the Swiss ICO industry launched last month by the Swiss government, which will also consider possible legislative changes. The department for international finance in Bern has said its intention is to make Switzerland an “attractive location” for ICOs. The government ICO working group is expected to report by the end of the year.

Globally, regulators worry about crypto currencies being used by criminals and for money laundering, as well as the risks to investors - and traditional banks have sought to prevent them infiltrating the conventional financial system. The UK and US have been among the countries advising caution.

Finma’s guidelines identify three categories of ICOs. The first are “payment ICOs,” which are transferable and can function as means of payment. Finma said these would have to comply with anti-money laundering regulations but would not be treated like financial securities. Second, are “utility ICOs,” which will not qualify as securities if their only purpose is to confer digital access rights to an application or service. Third, are “asset ICOs,” which will be treated like equities or bonds if, for example, they pay dividends, interest or give rights to earnings streams. These will be subject to strict securities law requirements.

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