Securities-Related Laws

A Token with one or more of the following rights will in all likelihood not meet the definition of security/financial instrument:

  1. Rights to program, develop or create features for the distributed ledger;

  2. Rights to access the system;

  3. Rights to contribute labour or effort to the system;

  4. Rights to use the services of a system and its out-puts at no charge;

  5. Rights to sell the products of the system; and

  6. Meaningful voting rights, free information and possibility of exchanging opinions among Token holders.

A Token with one or more of the following rights will in all likelihood qualify as a security/financial instrument [1]:

  1. An investment of money in a start-up

    a. with a reasonable expectation of profits, such profits consisting of dividends, periodic payments or the increased value of the investment; or

    b. if the profits are to be derived from the entrepreneurial or managerial efforts of others (i.e. of the founders); or

    c. the voting rights of the Token holders do not provide a meaningful control over the startup.

  2. Share of profits and/or losses, or assets and/or liabilities;
  3. Status as equity holder, creditor or lender;
  4. Claim in bankruptcy as equity interest holder or creditor;
  5. Holder of a repayment obligation from the issuer of the Token; and
  6. Management or board of the issuer have the effective control over the project.

If there are any doubts regarding any of the criteria above, contacting the Swiss regulator Financial Market Supervisory Authority (FINMA) is recommended.

Bitcoin (BTC) and Ether (ETH) are considered as means of payment and can be traded on respectively transferred to a wallet, provided the rules for the prevention of money laundering (AML Rules) are respected. If a token is linked to a debt or share, it is automatically granted the status of being a security.

The Swiss Financial Market Supervisory Authority, FINMA, assesses new financing tools such as ICO in accordance with the existing legal basis for financial markets, because in Switzerland no specific rules for ICOs or similar business models exist.

Regarding the applicability of the financial markets law (in particular Banking Act, Anti-Money Laundering Act and Ordinances, Securities Trader and Stock Exchange Act, Collective Investments Scheme Act) one question among many is decisive: Do the Tokens offered qualify as financial instruments/ securities? If yes, the relevant laws for banks, securities, collective investment schemes etc. apply. Initial Coin Offerings (ICO) based in Switzerland still have to consider the law in other jurisdictions. For example, anyone selling tokens to US persons, regardless from where, is subject to applicable US laws. This counts for pre-sales and secondary trading via exchanges too. It is recommended that anyone considering a ICO conduct a thorough jurisdictional due diligence ahead of time to avoid any surprises[2].

Based on this background, FINMA invites the parties interested in launching an ICO to submit detailed information on the planned Token offering for an assessment of the need for authorisation. Depending on the level of intensity and details of the information provided, FINMA will charge fees for its evaluation.

FINMA does not assess questions of civil law (prospectus) or tax law in the context of ICOs[3].


[1] Information quoted from Wenger & Vieli

[2] Information quoted from Crypto Valley

[3] Information quoted from Wenger & Vieli

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