At a glance: cryptoassets for investment and financing in Switzerland

Cryptoassets for investment and financing

What attributes do the regulators consider in determining whether a cryptoasset is subject to regulation under the laws in your jurisdiction?

According to the Financial Market Supervisory Authority (FINMA), the applicable regulation depends on the types of cryptoassets. In its ICO Guidelines, FINMA differentiates between:

• payment tokens: synonymous with cryptocurrencies, these are tokens 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, value storage or transfer. Cryptocurrencies give rise to no claims on their issuer. Payment tokens do not qualify as securities. However, collecting or transferring these cryptocurrencies or even the support in transferring cryptocurrencies in a permanent business relationship will usually be subject to the Anti-Money Laundering Act (the AMLA);
• utility tokens: intended to provide access (digitally) to applications or services through a blockchain-based infrastructure. If a utility token functions solely or partially as an investment in economic terms, FINMA will treat them as securities (ie, in the same way as asset tokens); and
• asset tokens: represent assets such as a debt or equity claim against or in the issuer. Asset tokens promise, for example, a share in future earnings or future capital flows of the issuing entity or the platform. In terms of their economic function, these tokens are treated analogously to equities, bonds or derivatives (securities). Generally, tokens that enable physical assets to be traded on the blockchain also fall into this category. FINMA regards asset tokens as securities, meaning that there are securities law requirements (the Financial Services Act (FinSA), the Financial Market Infrastructure Act and FinIA) for offering or trading in them, and civil law requirements under the Swiss Code of Obligations.

The individual token classifications are not mutually exclusive (eg, both asset and utility tokens can be classified as payment tokens (hybrid tokens)).

Depending on the type of cryptoasset, different laws may apply.

In particular, the Banking Act (BA) introduced the term cryptoasset and defines in which cases a fintech licence or even a banking licence is required. Accordingly, cryptoassets are crypto-based assets that are collectively pooled and are no longer individually assignable to an individual client. These cryptoassets must intend to serve as a means of payment for the purchase of goods or services or the transfer of money or value.

Cryptoassets are not considered crypto-based assets in the sense of the BA if they are booked as credit balances on the customer accounts of securities or precious metal dealers, asset managers, a DLT trading facility or similar companies and serve solely to process customer transactions, if:

• no interest is paid for it; and
• in the case of accounts other than those of securities dealers, settlement shall take place within 60 days.

How are investors in cryptoassets classified and treated differently?

According to FinSA, there are three main types of investors connected with financial services:

• institutional clients, such as banks and securities houses;
• professional clients, such as financial professionals; and
• retail clients, who essentially fall outside the previous two categories and are considered consumers.

High net worth individuals may declare to be treated as professional clients for investment purposes.

The Collective Investment Schemes Act (CISA) differentiates between qualified and non-qualified investors, whereby the definition of qualified investors references back to the professional client according to FinSA but adds clients with a permanent investment management or investment advisory relationship with a prudentially supervised and licensed financial institution.

What rules and restrictions govern the conduct of, and investment in, initial coin offerings (ICOs)?

There is no uniform law governing ICOs in Switzerland. Depending on the qualification of the cryptoasset, different provisions may apply. There is no FINMA authorisation requirement for conducting an ICO, unless a cryptoasset is deemed as being derivative or if there is a repayment obligation of the issuer. In these cases, authorisation as a securities house or a banking licence may be necessary. The banking licence is the highest regulated category of financial market participation.

An ICO of a payment token triggers obligations under the AMLA. However, payment tokens qualify as securities as long as they are not operational on a blockchain.

An ICO of a utility token is not subject to the AMLA if the functionality of the token pertains to access to the blockchain for mainly non-financial purposes. If a utility token functions solely or partially as an investment in economic terms, FINMA will treat them as securities.

An ICO of an asset token may, according to FinSA, lead to the obligatory publication of a prospectus or information sheet.

Issuing NFTs is generally not subject to financial market regulations provided that it does not circumvent regulations. A circumvention would, for example, be if each of 100 NFTs represents generically 1/100 of a painting because in such case each NFT would be the exactly the same except for its unique number and, therefore, have the same value and be exchangeable. This would, under Swiss law, trigger securities regulations. Opposed to this, an NFT referencing a specific piece of the 100 pieces of the painting (eg, piece B3 or H5) would be unique not only regarding its number but also its content and, therefore, would not be exchangeable with another NFT.

Generally, in Switzerland, four stages in an ICO can be distinguished:

• The pre-financing stage: investors are only offered the prospect that they will receive tokens at some point in the future and the tokens or the underlying blockchain, or both, remain to be developed. There are no transferable tokens on a blockchain at this stage.
• The pre-sale (voucher) stage: investors receive tokens entitling them to acquire or receive different tokens at a later stage (conversion or exchange is required).
• The pre-operational stage: the tokens’ main functionality is ready, but it cannot be used yet at the point of issuance because the application, platform or underlying blockchain remains to be developed or requires completion. No token conversion is necessary once the development of the platform or underlying blockchain is completed.
• The operational stage: the tokens’ main functionalities are ready and can be used in the intended way on a functional blockchain, application or platform at the point of issuance.

What rules and restrictions govern the conduct of, and investment in, security token offerings (STOs)?

Offering cryptoassets qualifying as securities only leads to an authorisation requirement if the cryptoassets in question are derivatives, collective investment schemes or if an intermediary places the securities on behalf of the issuer in the primary market (securities-house licence). Further, there are strict regulatory requirements for issuing and offering structured products to private clients and retail clients respectively. 

Regarding a public offering, issuers of securities must, according to FinSA, publish a prospectus to be reviewed and approved by a reviewing body authorised by FINMA. Exceptions to this rule are specified in the FinSA and include:

• offerings to professional investors;
• offerings to fewer than 500 investors;
• offerings to investors who invest more than 100,000 Swiss francs;
• offerings of securities with a minimum denomination of 100,000 Swiss francs; and
• offerings that are limited to a total amount of 8 million Swiss francs.

Further, if securities are offered to retail investors, the issuer is generally required to draft a basic information document.

What rules and restrictions govern the issue of, and investment in, stablecoins?

For stablecoins, FINMA follows the rules based on the stablecoin supplement to the ICO Guidelines, which takes the same approach as blockchain-based tokens by mainly focussing on the economic function and the purpose of a token (substance over form). Depending on the case, FINMA will follow the ‘same risks, same rules’ principle and the relevant features of each case.

Since stablecoins can be variable, the requirements under supervisory law may differ depending on which assets (eg, currencies, commodities, securities and real estate) the stablecoin is backed by or pegged to and the legal rights of its holders. Regulations of banking, fund management, financial infrastructure, money laundering and securities trading can all become relevant.

Are cryptoassets distributed by airdrop treated differently than other types of offering mechanisms?

Generally, no, but in certain cases, anti-money laundering provisions may apply. If the airdrop is done without the required activity from the receiving party (in particular no purchase price and no other consideration including (personal) data), the receiving party has not made an investment decision; therefore, there is generally no prospectus requirement.

What laws and regulations govern the advertising and marketing of cryptoassets used for investment and financing?

Cryptoassets used for investment or financing usually qualify as securities, triggering the FinSA prospectus and basic information sheet requirements with the issuer and FInSA duties of conduct at the point of sale with the financial services provider. In particular, advertising for financial instruments must be clearly recognisable as such. The advertising must refer to the prospectus and the basic information sheet for the respective financial instrument. Advertising for accepting cryptocurrencies as public deposits according to the Banking Act to Swiss residents is only allowed with a banking licence.

In all other cases, there are no strict provisions regarding advertising. However, laws regarding unfair competition and criminal statutes concerning fraud must be observed.

Are investors in an ICO/STO/stablecoin subject to any restrictions on their trading after the initial offering?

Generally, no, except, for example, potential transfer restrictions imposed by the issuer based on securities laws or derivatives trading obligations. Further, Swiss or other sanctions regulations may prohibit transfers in crypto assets.

How are crowdfunding and cryptoasset offerings treated differently under the law?

According to Swiss regulations, four crowdfunding categories must be differentiated that apply regardless of involving fiat or crypto:

• crowd donating;
• supporting;
• lending; and
• investing.

Generally, only the debt-based crowdlending and the equity-based crowd-investing platforms are currently subject to the AMLA.

Crowdlending may lead to the requirement of a banking licence according to the BA. However, depending on the amount of funds raised, certain exemptions and reliefs may apply. In particular, the fintech licence is available for innovative projects not collecting more than 100 million Swiss francs from the public or unlimited pooled crypto-based assets and neither investing those funds nor paying interest. This licence provides for many reliefs regarding capital and organisational requirements. Depending on the structure, crowd investing may trigger collective investment-scheme regulations.

What laws and regulations govern cryptoasset transfer agents and share registrars?

No specific laws govern these services. Generally, the AMLA must be observed for transferring any kind of cryptoasset qualifying as a financial instrument or means of payment and even for supporting the transfer of cryptocurrencies in a permanent business relationship. In particular, changing cryptocurrency into another cryptocurrency or fiat currency is considered to be money exchange or remittance; therefore, it is subject to the AMLA. Also, the provision of cryptoasset transfer services will trigger anti-money laundering obligations if the service provider conveys over or safekeeps the private key of its clients.

What anti-money laundering (AML) and know-your-customer (KYC) requirements and guidelines apply to the offering of cryptoassets?

The AMLA, and the corresponding ordinance, stipulate the obligations that must be performed by financial intermediaries subject to those laws.

Generally, only an ICO regarding payment token or a hybrid token with payment functions is subject to the AMLA. However, AML and KYC requirements are often triggered if a financial intermediary is involved in a transaction with payment tokens.

Natural or legal persons offering services regarding cryptoassets within the scope of the AMLA must join a self-regulatory organisation. Those private self-regulatory organisations recognised by the FINMA will impose their own rules and supervision regarding AML compliance on their members.

Within the scope of the AMLA, the following typical duties apply:

• client identification;
• the verification of beneficial ownership;
• politically exposed persons and sanctions checks;
• the sourcing of funds and wealth;
• enhanced due diligence in the case of high risks or red flags within the client relationship. In the context of additional clarifications, further background information on the business relationship must be obtained. Depending on the circumstances, the origin, intended use or background of the assets contributed or deducted, the origin of the assets or the business activities of the customer or the beneficial owner must be clarified;
• documentation duties;
• notification duties; and
• the freezing of assets.

Further, the Travel Rule applies to transactions in cryptocurrencies similarly to wire transfers in fiat currencies.

The extent of the aforementioned obligation may vary depending on the services or activities and the number of Swiss francs collected or transferred.

Presently, there are no specific rules, guidelines or established practices regarding cryptoasset providence identification or proof of ownership. However, these checks must be performed to comply with the AMLA.

What laws and regulations apply in the context of cryptoassets to enforce government sanctions, anti-terrorism financing principles, and Financial Action Task Force (FATF) standards?

Sanctions are implemented in Switzerland by the Embargo Act (EmbA) and the corresponding ordinances regarding specific sanctions towards certain countries, people or organisations to restrict the provision of certain services and sale of goods financing those persons. International UN sanctions are directly applicable in Switzerland and must be regularly observed, particularly when providing financial services. Further, Switzerland usually implements EU sanctions. However, the Swiss government is not allowed to impose its own sanctions or stricter sanctions than the EU. Business relationships with sanctioned persons may not be commenced or must be terminated.

In Switzerland, sanctions regulations are completely separate from AML regulations. The main competent authority for sanctions regulations implementation and supervision is the Swiss State Secretariat for Economic Affairs (SECO).

The UN and the FATF anti-terrorism financing principles are implemented by EmbA sanction’s legislation and the AMLA, particularly the enhanced due diligence and notification duties.

In particular, the Travel Rule is implemented as part of the AML framework by article 10 of the AML Ordinance FINMA (AMLO-FINMA) and the regulations of self-regulatory organisations (SROs). Finally, there is no specific Swiss regulation for virtual asset service providers (VASPs) according to the FATF, but the VASP-requirements are mainly implemented by the AMLA and also by the licence requirements of other financial market laws, such as the BA or FinIA.