FINMA assesses ICO structures on a case-by-case basis and has defined the principles for assessment in its ICO Guidelines under a token framework. As a basic rule, FINMA made it clear that it will base its assessment on the underlying economic purpose of an ICO, especially in cases where it suspects a circumvention of existing financial markets regulation. FINMA has identified the following three token categories:
1. Payment tokens (synonymous with cryptocurrencies) are tokens used as a means of payment that do not give rise to claims on their issuer. According to the ICO Guidelines, FINMA “will not treat payment tokens as securities”.
Insight: FINMA hasn’t mentioned that cryptocurrencies could qualify as a payment system according to Article 81 of the Swiss Financial Market Infrastructure Act (FMIA), which indicates that FINMA will not request a licence as a payment systems for cryptocurrencies. However, the issuing of payment tokens constitutes the issuing of a means of payment subject to the Anti-Money Laundering Act (AMLA) as long as the tokens can be transferred technically on a blockchain infrastructure.
FINMA also made it clear that the exchange of a cryptocurrency for fiat money or another cryptocurrency falls under Article 2(3) AMLA. The same applies to the offering of services to transfer tokens if the service provider (custodial wallet provider) maintains the private key.
2. Utility tokens provide access to a platform that offers blockchain-based infrastructure. As long as such ‘platform tokens’ have no investment purpose and can actually be used to confer digital access rights to an application or service at the point of issue, FINMA will not treat them as securities.
Insight: In the current market environment, however, ICOs are regularly launched in order to raise funds for developing a platform – the platform is not accessible at the time of the token issuance. Consequently, according to the wording of the ICO Guidelines, in the majority of cases FINMA would qualify a ‘platform token’ at the time of the ICO as a security token rather than a utility token.
It’s currently unclear whether FINMA requires full access to an already established platform for such qualification or regards a beta version of the platform as sufficient qualification as utility token. But if the token qualifies as security, a prospectus according to the Swiss Code of Obligations (CO) may have to be issued. However, such qualification does not automatically mean that a FINMA license is required.
3. Asset tokens represent assets such as a debts or equity claims on the issuer and are qualified as securities by FINMA.
Insight: I would like to emphasise that this does not mean, however, that it is not possible to issue Swiss asset tokens. The issuing of tokens that are analogous to equities or bonds can result in prospectus requirements under the Swiss Code of Obligations to be applicable. Moreover, an issuer of asset tokens has to be compliant with Swiss securities regulation.
The book-entry of self-issued uncertificated securities is essentially unregulated, even if the uncertificated securities in question qualify as securities within the meaning of FMIA. The same applies to the public offering of securities to third parties. The creation and issuance of derivative products as defined by FMIA to the public on the primary market is, however, regulated and requires a FINMA license as a derivatives firm.
Underwriting and publicly offering tokens that constitute third-party securities on the primary market may require a license as an issuing house if the activity is conducted in a professional capacity.
Hybrid tokens are asset and utility tokens that can also be classified as payment tokens. Such tokens may be deemed to be both securities and means of payment and the respective requirements apply cumulatively.