By Kim Dong-uk
On February 19, the Swiss Financial Market Supervisory Authority (FINMA) announced its ICO Guidelines. They have attracted attention from all over the world for two reasons.
These guidelines are the first attempt to regulate initial coin offerings (ICOs) in the world. Japan revised its “Act on Settlement of Funds” last year to bring cryptocurrencies into the law, but the amended legislation did not specify regulations for ICOs.
On the other hand, the new Swiss ICO Guidelines suggest a way to deal with ICOs within the existing financial regulatory framework, and provide details on how to regulate them by clarifying their purpose, object, and the application of regulations to ICOs. Zug Canton in Switzerland has been a hotspot for ICOs.
Because of its adoption of cryptocurrency-friendly policies, many large foundations have been set up in Switzerland for the purpose of launching ICOs. As a result, FINMA has accumulated lots of data about ICOs compared to other nations’ regulatory agencies. As the new guidelines are based on the data, it is expected that they will have a big impact on other countries’ regulations.
FINMA clarified that the purpose of the guidelines is not only to regulate ICOs, but also to promote the blockchain industry as a whole, and to provide supervisory principles for organizations carrying out ICOs. The main question is whether a particular ICO is hiding its true economic purpose to bypass existing financial regulations. In other words, FINMA will take a long, hard look at each ICO and identify ulterior motives, if any. The ICO Guidelines divide cryptocurrencies into three types of tokens based on the accumulated data, and provide regulatory policies for each.
Under the guidelines, cryptocurrencies are categorized as payment tokens, utility tokens, or asset tokens. A payment token means a cryptocurrency that has stored value to purchase goods or services and plays the role of a currency. A payment token is not treated as a security in principle, but anti-money laundering regulations are applied. A utility token means a cryptocurrency that grants electronic rights to access a specific platform or services. It is not regarded as a security. Finally, an asset token means a cryptocurrency that contains a right to bonds or equities.
If a cryptocurrency is standardized, suitable for mass transactions but not approved by the government, it is regarded as a security under the Swiss Financial Market Infrastructure Act (FMIA). Until now, cryptocurrencies have been unofficially divided into utility tokens and security tokens. Although a security token is very similar to an asset token in the ICO Guidelines, existing utility tokens are now divided into payment tokens and utility tokens by their functions, which is a point of distinction compared to the existing taxonomy of cryptocurrencies. However, a given cryptocurrency may correspond to two or more of the three types of token, and in such cases, all the regulations that are applied to each type of token are applied to that cryptocurrency.
The Swiss ICO Guidelines have improved the predictability of ICO regulations for cryptocurrency issuers and ICO participants, thus preparing the path to regulate ICOs stably in many jurisdictions. Their influence is bound to be felt far outside Swiss borders.
The thoughts and opinions expressed in this column are those of its author and do not necessarily reflect those of HMP Law.