It's about time a regulator broke ranks and proposed some specific guidance on initial coin offerings (ICOs).
The response from the vast majority of regulators has been to either ban them outright (South Korea - albeit possibly only temporarily, China), or to make caveated statements about how they are risky and they might be regulated (UK's FCA, Canadian Securities regulators, US SEC). The Maltese government does have a consultation paper on distributed ledger technology and a proposed new authority, which covers ICOs, out at the moment.
The Swiss Financial Market Supervisory Authority (FINMA) has proposed a set of guidelines setting out how it intends to apply financial market legislation. Switzerland has been a popular location for ICOs in recent months so it makes sense that the Swiss regulator would clarify its regime.
The guidelines propose categorising coins into one of three buckets (although noting that there may be hybrid coins). These are described below, with a summary of how FINMA expects to apply various pieces of legislation:
- 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. FINMA will require compliance with anti-money laundering regulations but will not, however, treat such tokens as securities.
- Utility tokens are tokens which are intended to provide digital access to an application or service. 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 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. 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 Swiss law (such as prospectus requirements).
FINMA may also, at some point in the future, decide to publish this interpretation in the form of a circular.
Whilst this is all very interesting, no new laws are actually being proposed here. Perhaps none are needed. The reason the FINMA guidance is interesting is that it's a clearer statement of how it is likely that ICOs might be treated, within the confines of existing legislation. Such statements should be welcomed.
