The Swiss Financial Market Supervisory Authority
FINMA sets out how it intends to apply financial market legislation in handling enquiries from ICO
The guidelines also define the information FINMA requires to deal with such enquiries and the principles
upon which it will base its responses, creating clarity for market participants.
FINMA has seen a sharp increase in the number of initial coin offerings (ICOs) planned or executed in
Switzerland and a corresponding increase in the number of enquiries about the applicability of regulation.
ICOs are a digital blockchain-based form of public fund-raising for entrepreneurial purposes. Given a legal
and regulatory framework with partially unclear applicability, FINMA is today publishing guidelines, which
complement its earlier FINMA Guidance 04/2017, setting out how it intends to treat enquiries from ICO
organizers. Creating transparency at this time is important given the dynamic market and the high level of
Each case must be decided on its individual merits
Financial market law and regulation are not applicable to all ICOs. Depending on the manner in which ICOs
are designed, they may not in all cases be subject to regulatory requirements. Circumstances must be considered
on a case-by-case basis. As set out in FINMA Guidance 04/2017, there are several areas in which ICOs are
potentially impacted by financial market regulation. At present, there is no ICO-specific regulation, nor
is there relevant case law or consistent legal doctrine.
FINMA’s principles focus on the function and transferability of tokens
In assessing ICOs, FINMA will focus on the economic function and purpose of the tokens (i.e. the
blockchain-based units) issued by the ICO organizer. The key factors are the underlying purpose of the
tokens and whether they are already tradeable or transferable. At present, there is no generally recognized
terminology for the classification of tokens either in Switzerland or internationally. FINMA categorizes
tokens into three types, but hybrid forms are possible:
- Payment tokens are synonymous with cryptocurrencies and have no further functions or links to other
development projects. Tokens may in some cases only develop the necessary functionality and become accepted
as a means of payment over a period of time.
- Utility tokens are tokens which are intended to provide digital access to an application or service.
- Asset tokens represent assets such as participations in real physical underlyings, companies, or
earnings streams, or an entitlement to dividends or interest payments. In terms of their economic function,
the tokens are analogous to equities, bonds or derivatives.
Focus on anti-money laundering and securities regulation
FINMA’s analysis indicates that money laundering and securities regulation are the most relevant to ICOs.
Projects which would fall under the Banking Act (governing deposit-taking) or the Collective Investment
Schemes Act (governing investment fund products) are not typical.
The Anti-Money Laundering Act contains requirements for financial intermediaries including, for example,
the need to establish the identity of beneficial owners. The law aims to protect the financial system against
the risks of money laundering and the financing of terrorism. Money laundering risks are especially high in
a decentralized blockchain-based system, in which assets can be transferred anonymously and without any
Securities regulation is intended to ensure that market participants can base their decisions about investments
on a reliable minimum set of information. Moreover, trading should be fair, reliable and offer efficient price
On the basis of the above-mentioned criteria (function and transferability), FINMA will handle ICO enquiries
- Payment ICOs. For ICOs where the token is intended to function as a means of payment and can already be
transferred, FINMA will require compliance with anti-money laundering regulations. FINMA will not, however,
treat such tokens as securities.
- Utility ICOs. These tokens do not qualify as securities only if their sole purpose is to confer digital
access rights to an application or service and if the utility token can already be used in this way at the point
of issue. If a utility token functions solely or partially as an investment in economic terms, FINMA will treat
such tokens as securities (i.e. in the same way as asset tokens).
- Asset ICOs: FINMA regards asset tokens as securities, which means that there are securities law
requirements for trading in such tokens, as well as civil law requirements under the Swiss Code of Obligations
(e.g. prospectus requirements).
ICOs can also exist in hybrid forms of the above categories. For example, anti-money laundering regulation
would apply to utility tokens that can also be widely used as a means of payment or are intended to be used
Blockchain technology has innovative potential
Following further consolidation of this supervisory practice, FINMA may in future decide to publish its
interpretation in the form of a circular.
FINMA recognizes the innovative potential of blockchain technology and therefore supports the federal
government’s Blockchain/ICO Working Group in which it is participating. Clarity about the underlying civil
law framework will be a decisive factor in establishing this technology sustainably and successfully in
FINMA CEO, Mark Branson comments: “The application of blockchain technology has innovative potential within
and far beyond the financial markets. However, blockchain-based projects conducted analogously to regulated
activities cannot simply circumvent the tried and tested regulatory framework. Our balanced approach to
handling ICO projects and enquiries allows 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
Information for investors
FINMA has several times drawn attention to the risks that ICOs can pose for investors. Tokens acquired in
the context of an ICO are likely to be subject to high price volatility. Since many ICO projects are at
an early stage of development, they are subject to numerous uncertainties. Furthermore, it is uncertain
under current civil law whether contracts executed via blockchain technology are legally binding.