Finma regulation crypto
There are no specific regulatory requirements for ICOs, however, certain aspects of ICOs do fall under financial-market law. FINMA enables the use of innovative technologies through its interpretation of applicable financial-market law. Tokens purchased during an ICO can experience high price volatility. Often, ICOs are conducted at an early stage, which results in a number of uncertainties regarding the projects to be funded.
FINMA does not tolerate fraudulent or abusive practices or the circumvention of the regulatory framework and it will take action against such conduct where necessary. As the structure of ICOs varies greatly, the applicable financial-market laws can change in each instance.
This created as much transparency as possible regarding the application of the law, enabling interested market participants to organise themselves in a rapid and straightforward manner and resolve most regulatory issues independently.
As set out in its guidelines, FINMA defines three types of tokens: payment, utility and asset tokens: Payment tokens for example cryptocurrencies are tokens which are intended to be used, now or in the future, as a means of payment for acquiring goods or services or as a means of money or value transfer.
The issue of payment tokens is subject to AMLA provisions as a rule. FINMA defines utility tokens as tokens intended to provide access digitally to an application or service by means of a blockchain-based infrastructure. The issue of utility tokens does not require supervisory approval if the digital access to an application or service is fully functional at the time the tokens are issued.
Asset tokens represent assets, such as a debt or equity claim on the issuer. In terms of their economic function, therefore, these tokens are analogous to equities, bonds or derivatives. The self-issue of asset tokens that qualify as securities does not require FINMA approval, but is governed instead by the prospectus requirements of the Code of Obligations CO.
Hybrid tokens are also possible: a token that simultaneously counts for utility and payment for example. Wallet services Tokens or coins are managed and transferred in the blockchain environment using software applications wallets. These wallets basically serve as a digital facility available to the user to store or transfer cryptoassets.
There are two types of wallet provider: custody wallet providers and non-custody wallet providers. There are also questions of banking law. Clients of non-custody wallet providers have sole access to their private keys. Non-custody wallet providers thus have neither a legal nor actual power of disposal over the third-party assets. As a result, these providers are not subject to the AMLA as the law currently stands or under international standards. Trading platforms in the blockchain environment If a trading platform aims to deal in asset tokens, in addition to payment and utility tokens, the asset tokens probably qualify as securities as defined in the Financial Market Infrastructure Act FinMIA.
Releasing tokens is important to assess the regulatory impact of ICOs. However, the initial classification may change after the ICO. For any trading activity with tokens in the secondary market, it is necessary to consider its classification in the relevant trading activity. In addition, to the ICO Guidelines of 11 September , the Monetary Authority published its opinion on the regulatory classification of stabilization tokens i.
Under Swiss law, tokens are not considered separate token types, and they are usually classified as a mixture of asset tokens or payment tokens and asset tokens, depending on the right assigned to stable tokens. Under Swiss law, payment tokens are not considered legal tender or other means of payment.
However, the Swiss Federal Council explained that payment tokens could be used as private means of payment if the parties to the transaction agreed to use them as the applicable means of payment for such transactions. In addition, the issuance of payment tokens is subject to Swiss anti-money laundering rules section V.
Query to FINMA Notwithstanding the recommendations made by the Monetary Authority, given that this area is new, the structure of the symbolic proposal is constantly changing with regard to the application of the International Customs Organization WCO guidelines in practical projects, usually by issuing confirmation requests to the Monetary Authority with exemptions from regulatory bodies, thus ensuring comfort.
Securities and Investment Act Swiss securities law applies to the issuance of an asset token or any hybrid form of token, including the function of an asset token for example, a stable token or token for services using an underdeveloped platform. However, payment tokens and service tokens that do not claim against the issuer or third parties are not subject to Swiss securities law, as they do not represent any rights.
Such payment tokens and service tokens should now be classified as intangible digital assets. Swiss Code of Obligations CO for tokens of assets or services presenting any claims against the issuer or third parties. DLT rights cannot be exercised or transferred outside the respective distributed registry. As to the scope of DLT rights, any rights that may be issued as documentary or non-documentary securities may be issued as DLT rights.
Consequently, they can be used to present fungible contractual claims e. However, cryptocurrencies or ownership or effective control of assets cannot be formalized as DLT rights. According to the Distributed Registry Act, to grant rights to a distributed registry, registration of the right to a distributed registry is required on the basis of an agreement between the issuer and the first holder, which provides for the registration of relevant rights in the distributed registry and the obligation that such rights may be transferred and exercised only in the relevant distributed registry.
It is also recommended that the parties expressly declare their intention, within the framework of the DLT Rights, to establish the DLT Law and that Swiss law be applicable. Without such a choice of law, the Swiss Private International Law Act, as amended by the DLT Act, provides that the laws of the place of registration or residence of the issuer apply, subject to special rules relating to property rights. In addition, the DLT Act specifies certain characteristics that must be observed by the distributed registry to which the DLT is entitled.
Such distributed registry should grant the right of disposal of DLT rights only to owners of DLT rights not to the debtor , protect its integrity through appropriate technical and organizational measures against unauthorized access and changes; Register or make available through a distributed registry, its terms and conditions of transactions and the relevant rights of the distributed registry, and ensure that the records of the distributed registry are accessible to the public.
However, the DLT Act does not specify any technical requirements, such as the minimum number of participants in the register or the consensus mechanism used. Token transfer requirements Under Swiss law, payment tokens and service tokens that do not present any claims against the issuer or third parties may be legally created and transferred in accordance with the terms of the respective distributed registry. Thus, the transfer can actually be effected through a transaction between two purses.
On the other hand, asset tokens or service tokens representing any claims against the issuer or third parties that are issued as DLT rights may only be transferred under the rules of the respective distributed registry. It no longer matters how the relevant rights presented in the DLT legislation will be transferred without digital representation in the DLT legislation, as in the case of asset tokens or service tokens representing any claims against the issuer or third parties, which are not issued as DLT rights.
The DLT Act provides for a rule on the finality of such transfers even if the transmitting party becomes insolvent. DLT rights holders will also be entitled to fair protection, as will paper security certificate holders, if they have acquired DLT rights from an unauthorized seller. Classification of tokens as securities Under Section 2 b of the Financial Market Infrastructure Act FMSA , securities are certified or undocumented securities, derivative securities, intermediary securities or rights to DLT, which are standardized and are suitable for mass trade.
Payment tokens cannot be defined as securities because they do not represent any rights that may be exercised against the issuer or third parties. Utility tokens can qualify as securities if the platform on which they can be used is not ready to operate during the sale of the token or if the tokens represent rights that can be applied to the issuer or third party. These service tokens are believed to have an investment purpose.
FINMA also explained that a case-by-case analysis is required to determine whether a service token can be used for its own purposes. In particular, it states that testing concepts or beta versions of platforms or applications on which utilities cannot yet be used is not enough to go beyond the definition of securities for FMIA purposes.
However, based on the fact that the qualification of tokens may change over time, Asset tokens are considered securities provided that they have been offered publicly or by 20 or more persons for sale. FINMA stated that any legally secured rights of investors to receive or purchase tokens in the future as a result of a pre-sale, such as a simple agreement on future tokens, are qualified as securities, If the rights have been proposed publicly or under identical conditions by more than 20 persons.
On the other hand, pre-sale rights are not securities if the terms used in the pre-sale transaction are not standardized or if different terms are used for each investor: for example, by changing the number of rights, price or any blocking position. Prospectus requirement Irrespective of the classification of tokens as securities, in respect of any tokens representing a digital representation of rights that may be exercised against the issuer, The question arises whether tokens are subject to the prospectus requirement under the Swiss Financial Services Act FinSA.
According to FinSA, the prospectus requirement applies generally to all public offerings of securities, including tokens that qualify as securities see Section II. This new obligation also applies to certain types of tokens that qualify as financial instruments e. According to this regulatory framework, a license for a securities firm is required for any brokering activity on behalf of clients other than institutional clients in respect of such tokens and any market creation activity in respect of such tokens.
In addition, underwriting of such tokens and issuance of tokens that qualify as derivatives are subject to licensing as firm or bank securities, if performed on a professional basis. In addition, the qualification of tokens as securities affects FMIA licensing requirements for any secondary trading platform on which such tokens can be sold. Collective Investment Laws In connection with any investment in tokens through collective investment schemes or funds, or in connection with the issuance of tokens representing units in collective investment schemes, the rules of Swiss collective investment schemes Act CISA and its executive provisions must be taken into account.
For CISA purposes, a collective investment scheme is a pool of assets attracted from investors for the purpose of investing under collective management on behalf of investors. CISA regulation applies regardless of the legal form chosen for the collective investment scheme or fund. As a result, the issue of tokens, as well as any business activity in relation to tokens regardless of their classification , according to which assets taken from customers for investment purposes are combined i.
Business enterprises are generally not subject to CASA. However, the distinction between a business and a collective investment scheme can only be made on a case-by-case basis. Banking operations and money transfers Under the Swiss Banking Act ABS , a bank licence is required if a mainly financial company accepts deposits from the public i. Under the Swiss Bank Regulation CFA , any undertaking is normally regarded as a deposit raising activity, unless one of the exceptions set out in article 5 2 and 3 of the CFO applies.
In accordance with this exception, without a bank licence, it is permitted to accept deposits from the public i. Compared to a full banking licence, some exceptions apply to the organization, risk management, compliance, regulatory auditor qualifications and capitalization requirements. Light Banking license is available from January 1, This may be an interesting option for organizations working in the crypto space that intend to accept deposits from the public for an amount below the limit of million Swiss francs.
In providing token storage services, the question arises: under what circumstances does a bank licence or banking licence be required to operate? In the case of token brokerage services, the activity may be subject to a bank licence if the service provider accepts fiat currencies or tokens in its own accounts, respectively public keys, for such services.
In this case, the service provider would have to rely on the waiver mentioned above. However, this exception is not available for cryptocurrency traders who carry out activities comparable to those of currency traders i. The Anti-Money Laundering Act applies, inter alia, to financial intermediaries. In short, in addition to the entities subject to supervision, any person taking, owning or depositing assets belonging to other persons or facilitating the investment of such assets on a professional basis, Is classified as a financial intermediary under Article 2 3 of the Anti-Money Laundering Act.
In addition, the Programme of Action contains a non-exhaustive list of activities that are considered financial intermediation. In the context of ICOs and tokens, the issuance of means of payment, which cannot be used exclusively with the issuer, the provision of services related to payment transactions in the form of money and transfer of assets, Currency exchange services are important financial intermediation activities.
In addition, the financial intermediary must comply with the obligations set out in the Anti-Money Laundering Act, including, inter alia, the obligation to identify and identify its customer FCA linked to a Contracting Party and its beneficial owner; and must report to the Finance Division. The Swiss Money-Laundering Reporting Office in cases of suspicion of money-laundering or financing of terrorism. Under the travel rule, the relevant Swiss financial intermediary must transmit the same information as required for electronic transfers of fiat money or, alternatively, it must 1 identify the recipient according to the Swiss UNDER rules as if the recipient were a customer.
The Swiss financial intermediary and 2 verifies the right of the recipient to dispose of the wallet used by him by means of appropriate technical measures determined by the relevant Swiss financial intermediary. ICO Depending on the classification of the tokens to be issued by the ICO, the question can be qualified as financial intermediation.
The issuance of payment marks is classified as the issuance of payment instruments and therefore constitutes financial intermediation under the AMLA. Issue service tokens, which are some form of payment function in a specified application or platform for example, the ability to use service tokens to pay for services used on such platform Under the AMLA, financial mediation is a mediation activity.
However, the issuance of service tokens is not regarded as financial intermediation if the service token does not have any form of payment function or if the payment function is exceptionally treated as an ancillary function of service tokens. To take advantage of this exception, it is necessary that the primary purpose of service tokens is to grant access rights to a non-financial application, so that the entity providing payment functions is also an organization, managing a non-financial application, and that access to a non-financial application cannot be granted without including additional payment functions built into the token of service.
However, please note that FINMA applies this exception very restrictively, and in practice any token of service with any payment function is treated as financial intermediation within AMLA. The issue of asset tokens is not qualified as financial intermediation under AMLA, provided that asset tokens are classified as securities, and provided that they are not issued by a bank, securities firm or other entities, under prudential supervision.
However, in practice, issuers of asset tokens are often required to conduct some CACs and identify processes on a voluntary basis due to compliance with the requirements of banks to which ICOs revenues will be transferred. The granting of rights to purchase tokens in the future as part of a preliminary transaction is not financial intermediation, provided that the issuer is not a bank, a securities firm or some other subject under prudential supervision. However, the subsequent issue of tokens, which qualifies as a matter of means of payment under AMLA i.
As a result, the obligations arising from the Anti-Money Laundering Act come into force at the time of its adoption. Exchange and intermediary services Exchange of fiat currencies for tokens or vice versa, or exchange of two different tokens, is a financial intermediary under the condition of AMLA. If the service provider offers exchange services directly i.
For these services, a minimum threshold of CHF 1, applies if foreign exchange transactions are linked to cryptocurrencies, and transactions below this threshold are exempt from KCS or AMLA identification obligations. If the service provider offers an exchange service involving a third party e.
In addition, FINMA, in connection with the provision of payment services by entities under its control, indicated that the transfer of cryptographic assets to external purses e. FINMA justifies this approach in that there is currently no way in blockchains to provide identifying information about the sender and recipient of the transaction, similar to traditional bank transfers such as SWIFT. Custodian services A custodian service provider is considered a financial intermediary if it has the right to dispose of the private keys of the stored tokens custodial wallets.
In addition, this activity may lead to the need to obtain a banking license see Section IV. Thus, the legislature is departing from its principle of technology-neutral regulation to remove barriers that have prevented the creation of trading platforms for trade tokens classified as securities in Switzerland at least until such DLT securities are structured as non-documentary. Under previous licensing options, trading platforms could not integrate post-trade activities into the trading platform.
In addition, clearing and settlement of transactions require separate central counterparties and central securities depositories. With regard to transactions in distributed registries, Such transactions are usually carried out simultaneously with the transaction by registering the transaction in a distributed registry, without the involvement of additional intermediaries engaged in clearing or settlement.
In addition, trading platforms are not allowed to provide direct access to retail customers. The DLT Act amends the FCIA by introducing DLT trading systems as platforms for the multilateral trading of DLT rights or other rights governed by foreign law, which are represented in the distributed registry, qualified as non-discretionary-based securities collectively DLT Securities that satisfy at least one of the following requirements: the trading system allows trade of unregulated legal or natural persons as participants, the operator of the trading system centrally deposits the DLT Securities on the basis of a distributed register based on uniform rules, or a trading system operator carries out post-trade transactions with DLT Securities such as clearing and settlement on the basis of uniform rules and procedures.
In addition, the DLT Act allows a firm regulated as a securities firm or as a bank to manage an organized trading mechanism for trading DLT rights. Other tokens With regard to the regulation of exchange of payment tokens and service tokens that do not fall under the category of securities, under Swiss law there are no licensing requirements for doing business of this kind, except to ensure compliance with the requirements of the Swiss AML section V.
However, since the transactions of such exchanges usually involve the acceptance of fiat currencies or such tokens into the accounts or public keys of the exchange operator, the requirement for a bank licence may be triggered as an acceptance which is the acceptance of deposits from the public section IV. In addition, this exemption would apply only if clients are not exposed to an increased risk of bankruptcy similar to those of a currency trader Section IV.
In addition, the exchange may benefit from an exemption from the sandbox under Article 6 2 of the SBO if fiat currencies and tokens worth less than CHF 1 million are accepted from the exchange participants and if the participants are informed that there is no oneor prudential supervision of the exchange operator and any protection against deposit protection.
In any case, the token exchange operation is a service for the transfer of money and assets in accordance with Article 4 2 of AMLO. Thus, the exchange operator is a financial intermediary who, inter alia, is obliged to join the SRO or to obtain a licence from the FINMA financial intermediary.
Virtual currency mining regulation In an unlimited decentralized network such as Ethereum or Bitcoin blockchain , extracting native tokens of the respective distributed registry, typically a payment token, plays an important role in recording transactions in a distributed registry, due to the absence of a central authority, controlling transactions.
To secure financial transactions and ensure that there is no fraud, miners or crypto miners must verify transactions and add them to the distributed registry.
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Only then, for example, can the provider receiving this information check the name of the sender against sanction lists or check that the information provided about the beneficiary is correct. Anti-money laundering regulations apply to the blockchain FINMA has consistently applied the Anti-Money Laundering Act to blockchain service providers since their emergence.
In its guidance published today, FINMA provides information about this technology-neutral application of the regulation to payment transactions on the blockchain. Institutions supervised by FINMA are only permitted to send cryptocurrencies or other tokens to external wallets belonging to their own customers whose identity has already been verified and are only allowed to receive cryptocurrencies or tokens from such customers.
FINMA-supervised institutions are thus not permitted to receive tokens from customers of other institutions or to send tokens to such customers. This practice applies as long as information about the sender and recipient cannot be transmitted reliably in the respective payment system. Unlike the FATF standard, this established practice applies in Switzerland without the exception for unregulated wallets and is therefore one of the most stringent in the world.
As usual, various conditions are attached, ensuring that the businesses are set up in an orderly manner. FIs are also only allowed to get digital assets these customers. This practice applies as long as information about the sender and recipient cannot be transmitted reliably in the respective payment system.
Unlike the FATF standard, this established practice applies in Switzerland without the exception for unregulated wallets. This federal act applies to financial intermediaries and governs the combating of money laundering and terrorist financing. It ensures the exercise of due diligence in the conduct of financial transactions. FINMA grants operating licences for companies and organisations subject to its supervision, monitors the supervised institutions with respect to their compliance with the requisite laws, ordinances, directives and regulations, as well as with the conditions for the granting of licences that should be complied with at all times.
This enables these banks to also support business customer accounts and support the wider blockchain economy infrastructure.
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This applies particularly to the rules for combating money laundering and terrorist financing, where the inherent anonymity of blockchain technology presents increased risks. Combating money laundering requires identification On 21 June the international body tasked with developing policies to combat money laundering, the Financial Action Task Force FATF , issued guidance on financial services in the context of blockchain technology.
As for traditional bank transfers, information about the client and the beneficiary must be transmitted with transfers of tokens with the exception of transfers from and to unregulated wallet providers. Only then, for example, can the provider receiving this information check the name of the sender against sanction lists or check that the information provided about the beneficiary is correct.
Anti-money laundering regulations apply to the blockchain FINMA has consistently applied the Anti-Money Laundering Act to blockchain service providers since their emergence. In its guidance published today, FINMA provides information about this technology-neutral application of the regulation to payment transactions on the blockchain.
Institutions supervised by FINMA are only permitted to send cryptocurrencies or other tokens to external wallets belonging to their own customers whose identity has already been verified and are only allowed to receive cryptocurrencies or tokens from such customers. FINMA-supervised institutions are thus not permitted to receive tokens from customers of other institutions or to send tokens to such customers.
Founded in , it is an independent institution — based in Bern — with power over banks, insurance companies, stock exchanges, securities dealers and collective investment schemes. It is responsible for combating money laundering and, where necessary, conducts financial restructuring and bankruptcy proceedings. FINMA grants operating licences for companies and organisations subject to its supervision, monitors the supervised institutions with respect to their compliance with the requisite laws, ordinances, directives and regulations, as well as with the conditions for the granting of licences that must be complied with at all times.
This enables these banks to also maintain business customer accounts and support the wider blockchain economy infrastructure. However, they are applicable for taxes once a miner sells. Due to the concentration of wealth in the country, the benefit of association with the jurisdiction in relation to financial markets and a number of other reasons, Switzerland is a hot spot of ICOs Initial Coin Offerings.
Initial Coin Offerings are regulated under provisions on combating money laundering and terrorist financing, banking law, securities trading and provisions set out in collective investment scheme legislation. These are not treated as financial securities. Asset Initial Coin Offerings: FINMA regards asset tokens as securities, which means that there are securities law requirements for trading in such coins.
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FINMA Guidelines and ICO Regulation in Switzerland - Fabien Gillioz, Ochsner \u0026 Associés - Law Firm
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In Switzerland, cryptocurrencies and virtual currencies are classified as assets or property.
| Penguins vs islanders | Therefore, the current attitude of the government and of the regulators to the use of crypto-assets in their jurisdiction is regulation very clear — the representatives of the Swiss federal government have publicly stated that Switzerland intends to become a leading hub for research and business solutions based on blockchain technology. In the case of equity tokens purchased by the shareholders of the issuer, the question arises as to whether the payment is taxable or not. In return, the investors receive blockchain- based coins or tokens, either created from a new blockchain or a smart contract based on a pre-existing blockchain where they are stored in link decentralised way. Without such a choice of law, the Swiss Private International Law Act, as amended by the DLT Act, provides that the laws of the place of registration or residence of the issuer apply, subject to special rules relating to property rights. Derivative financial instruments are generally not taxable under the Stamp Duty Act, so secondary market transactions are not subject to transfer tax. Instead, a joint-stock company is crypto more appropriate type of corporate form for ICO issuers. In addition, the exchange may benefit from an exemption from the sandbox under Article 6 2 of the SBO if fiat currencies and tokens worth less than CHF 1 million are accepted from the exchange participants and if the participants are informed that there is no oneor prudential supervision of the exchange operator and any protection against deposit protection. |
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