Utility tokens are not considered securities 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. On the other hand, if a utility token functions solely or partially as an investment in economic terms, FINMA will treat such tokens as securities – exactly as if they were asset tokens.
Similarly anti-money laundering regulation is not applicable as long as the main reason for issuing the tokens is to provide access rights to a nonfinancial application of blockchain technology. In other words: if the payment function of the utility tokens is just an "accessory service", such tokens are not to be considered a method of payment. A service is considered accessory if a series of conditions occur; mainly if the accessory service is of subordinate importance to the primary service and the provision of the primary service would not be possible without the token.
FINMA generally considers asset tokens as securities. This implies that trading in these tokens needs to comply with the securities law requirements and the civil law requirements under the Swiss Code of Obligations. Legislation concerning securities is mainly aimed at ensuring that prospective investors can base their decisions on a transparent, reliable and comprehensive set of information.
More in detail, when do ICOs need to comply with securities regulation?
Securities ("Effekten") are defined as: standardised certificated ("Wertpapiere") and uncertificated securities ("Wertrechte"), derivatives and intermediated securities ("Bucheffekten"), which are suitable for mass trading (Art. 2 let. B FMIA [FinfraG]).Securities suitable for mass standardised trading include certificated and uncertificated securities, derivatives, and intermediated securities which are publicly offered for sale in the same structure and denomination or are placed with more than 20 clients, as long as they have not been created especially for individual counterparties (Art. 2 para. 1 FMIO [FinfraV]).
Considering asset tokens as securities entails a series of duties for the ICO's organisers and for the financial intermediaries. Organisers need to ensure that ICOs adhere to the prospectus requirements which entails an adequate disclosure of information to investors.
As for financial intermediaries, offering asset tokens is to be considered a licensed activity and specific licensing requirements are needed for trading venues.
Asset tokens may also be subject to the Banking Act. Generally, when ICO organisers issue asset tokens, they do not guarantee the repayment of the money invested. However, should they guarantee a return of the capital invested, the Banking Act would apply.
FINMA also admits that ICOs may exist in hybrid forms – for instance, if utility tokens can be used as a form of payment, the ICO would need to comply with anti-laundering regulations.
It appears that FINMA is particularly concerned about the compliance of certain types of ICOs with the Anti-Money Laundering Act. In a blockchain system, financial risks may be particularly relevant, as transfers can take place anonymously and without relying on regulated intermediaries.
The focus is also on securities regulation – particularly on the obligation to provide investors with transparent and reliable information, not least because tokens acquired in the context of an ICO are likely to be subject to high price volatility.
The Guidelines confirm the interest of FINMA in the innovative potential of blockchain – and the necessity of a balanced -but firm- approach in regulating this new phenomenon. FINMA stated that its aim is to remove all unnecessary obstacles to innovative business models while ensuring transparency and legal clarity. As reported by Goldblum earlier this year, FINMA is also part of the Blockchain/ICO Working Group – formed by the (SIF) State Secretariat for International Financial Matters in January 2018 to overlook the legality and operational framework of ICO and blockchain. Establishing Switzerland as a leader in the FinTech market, while ensuring the country remains an attractive base for foreign investments, is definitely one of the main priorities for the Swiss Government.Source: https://www.finma.ch/en/news/2018/02/20180216-mm-ico-wegleitung/
Legal disclaimer. This article does not constitute legal advice and does not establish an attorney-client relationship. The article should be used for informational purposes only.