Switzerland's regulator issued preliminary guidelines for initial coin offerings. How do they compare with Asia's approach?
Switzerland will require some fundraisers by token, so-called initial coin offerings, to adhere to money-laundering laws, financial regulator Finma said in a statement.
The move is the first sign of structure around coin-based fund-raising since the alpine nation emerged as a hub for cryptocurrencies, along with rival Asian financial centers Hong Kong and Singapore. ICOs raised nearly $5 billion last year, much of it through Swiss entities, according to a recent study by consultant PwC and the Crypto Valley Association.
Dicey Questions
The rush for funds has also raised dicey questions for Switzerland around preventing ill-gotten money from flowing in. A bitter dispute over Tezos, one such currency, is testing the limits of Swiss foundation law.
On Friday, Bern-based regulator Finma signalled a softer approach than in Asia, where regulators have openly warned investors from fraud schemes and ICOs have hit regulatory walls.
Hands Somewhat Tied
Finma said payment tokens, or those such as bitcoin, ether, or litecoin which aim to be used as currency, will be subject to the same money-laundering requirements that finance firms are.
At the same time, Finma admitted its hands are somewhat tied, given the glut of offerings flooding into the alpine nation, until a working group launched last month finalizes recommendations to the Swiss government.
Much at Stake
«At present, there is no ICO-specific regulation, nor is there relevant case law or consistent legal doctrine,» the regulator said. Instead, some ICOs fall under securities oversight, for example, depending on their type.
The comments highlight that Switzerland, battered by several high-profile money-laundering scandals like Petrobras, Odebrecht, and 1MDB, has much at stake in cultivating «crypto nation» status. Finma said last year it has already shut down several crypto scams, and is monitoring several other, undisclosed projects.
Investors Repeatedly Warned
Singapore's financial center was, like Switzerland's, stung by the 1MDB scandal. The Monetary Authority, or MAS, has repeatedly warned investors over ICO schemes and money-laundering in particular (click here and here to read). At the same time, the city-state doesn't want to shut the door entirely on coin schemes, it has made clear.
Hong Kong has voiced similar concerns, and the territory's closeness to China, which has cracked down on ICOs much more harshly, may be a harbinger of a tougher line.
More Than One Set of Guidelines
Finma said it will group ICOs as payment (required to adhere to money-laundering laws, but not treated as a security like a stock or bond), utility (to buy specific services, not treated as securities), or asset coins (partial ownership of a specific assets, treated as securities and also subject to other requirements such as publishing an investor prospectus.
The regulator acknowledged that some coins may carry features of several categories, meaning it will be subject to more than one set of guidelines.
Integrity of the Financial System
Finma head Mark Branson said he welcomes blockchain technology, but that projects pinned to the decentralized ledger «cannot simply circumvent the tried and tested regulatory framework.»
Unlike counterparts in Singapore and elsewhere, Finma didn't issue any specific investor warnings on ICOs, saying merely that tokens can be volatile in price and that trades carried out on blockchain technology may not be legally binding.
«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 financial system,» Branson said.
