The rapid rise of cryptocurrencies has turned heads aplenty lately – and often left them spinning. For start-ups, financial institutions and investors seeking to operate in this new frontier, the open questions can seem an insurmountable barrier to progress: most prominently, how does one stay on the right side of the law when the law was written before bitcoin was a glint in its creator’s eye?
To learn more about the new FINMA guidance on cryptocurrencies – and its wider implications for those operating in the sector – watch leading Swiss law firm Pestalozzi’s recent webinar on demand now.
Switzerland has emerged among the forefront of countries making initial moves to address the regulatory treatment of cryptocurrencies and initial coin offerings (ICOs) in particular. Spurred on by the surge in fintech activity in the Zug ‘Crypto Valley’ in recent years, Switzerland accounted for an eye-catching $800 million of the $4.6 billion total global ICO market volume in 2017 – a share equalling that of the United States. In light of this success, the Swiss financial regulator (FINMA) recently issued guidance for those seeking to conduct ICOs in the country, which also provides much-needed enlightenment for those operating in other jurisdictions worldwide. Among the useful points gleaned from this guidance:
- How does FINMA classify the different coin tokens on offer, and how does this affect their regulatory treatment?
- When do coin offerings trigger anti-money laundering obligations?
- When is an ICO subject to prospectus requirements?
- What challenges arise for offerings spanning multiple jurisdictions?
- How is the secondary market (ie, coin exchanges) regulated?
- What are the prospects for future legislative changes and market activity?
FINMA has taken a decidedly ‘technology neutral’ approach to ICOs, eschewing bespoke regulations and instead relying on the existing provisions governing financial services. Nonetheless, this is a far cry from a one-size-fits-all stance; on the contrary, a range of variables (eg, add-on functionalities for certain tokens) can lead to increased legal and cost burdens, so stakeholders must remain vigilant – at the end of the day, FINMA will assess each offering on a case-by-case basis.
That said, FINMA has recognised the potential need for further guidance and regulation in future, and has already taken preliminary steps in this regard – doubtless with an eye towards gaining an edge in the inevitable regulatory competition among jurisdictions that will heat up in the years to come, as governments seek to woo investors and innovators in this fast-evolving sector.
While the territory is still largely uncharted and many questions remain, the Swiss may well have taken the torch and begun clearing the path for other countries and regulators to follow.