Initial coin offerings (ICOs) are under investigation – How are ICOs regulated under Swiss law?

Switzerland is a major hub for Initial Coin Offerings (“ICOs”) due to its friendly regulatory environment and political stability. The Swiss Federal Council and the regulator are committed to support Fintech innovations. Out of the six largest ICOs, four were hosted in Switzerland. These are Tezos, which raised over USD 238 million, Bancor, with USD 156 million, The DAO, USD 142 million, and Status, USD 95 million. ICOs are a digital form of the initial public offerings that businesses carry out but which, by contrast, exclusively take place using blockchain technology.

After noticing a marked increase in the number of ICOs made in Switzerland, the Swiss Financial Market Supervisory Authority (“FINMA”) has decided to investigate the new fundraising method based on cryptocurrency.

ICOs may fall under existing Swiss legislation

Currently, ICOs are not governed by any specific Swiss regulation. Accordingly, collecting funds for one’s own account without a platform or issuing house acting as an intermediary is unregulated from a supervisory standpoint in cases where repayment is not obliged, payment instruments have not been issued and no secondary market exists.

On the September 29, 2017, FINMA issued the FINMA Guidance 04/2017 and stated that ICOs may be subject to existing Swiss laws and regulations. Several links to existing regulatory law may exist depending on the structure of the services provided. In particular, the following areas are impacted:

  1. Provisions on combating money laundering and terrorist financing: The Anti-Money Laundering Act (“AMLA”) applies where the creation of a token by an ICO vendor involves issuing a payment instrument. If this is the case, other supervisory issues may be effective for third parties, especially for professional cryptobrokers or trading platforms which carry out exchange transactions or transfers with tokens (secondary trading with tokens).
  2. Banking law provisions: accepting public deposits where an obligation towards participants arises for the ICO operator because of the ICO generally necessitates a banking licence.
  3. Provisions on securities trading: a licensing requirement to operate as a securities dealer may exist where the tokens issued qualify as securities (e.g. derivatives).
  4. Provisions set out in collective investment schemes legislation: potential links to collective investment schemes legislation may arise where the assets collected as part of the ICO are managed externally.

How can PwC support you?

In particular, PwC can support you in the following matters:

  • Legal and regulatory structuring and implementation of initial coin offerings/token generating events
  • Setting-up trading platforms for crypto and digital currencies as well as tokenized assets
  • Designed compliance frameworks for trading platforms and digital processes
  • Regulatory assessment and project support regarding e-payment solutions
  • Incorporation of Swiss issuers, relocation and immigration services
  • Legal and regulatory advice on data protection and data security
  • Legal support with license and procurement agreements

Let’s talk!

Günther Dobrauz
Partner
Leader Legal FS Regulatory & Compliance Services
Direct: +41 58 792 14 97
Email: guenther.dobrauz@ch.pwc.com

Tina Balzli
Director
Legal FS Regulatory & Compliance Services
Direct: +41 58 792 1554
Email: tina.balzli@ch.pwc.com

Jean-Claude Spillman
Senior Manager
Legal FS Regulatory & Compliance Services
Direct: +41 58 792 4394
Email: jean-claude.spillmann@ch.pwc.com

Michaela Brunnhofer
Manager
Legal FS Regulatory & Compliance Services
Direct: +41 58 792 4794
Email: michaela.brunnhofer@ch.pwc.com

Orkan Sahin
Assistant Manager
Legal FS Regulatory & Compliance Services
Direct: +41 58 792 1994
Email: orkan.sahin@ch.pwc.com

Published by

Guenther Dobrauz

Guenther Dobrauz

Guenther Dobrauz
Leader PwC Legal Switzerland
Birchstrasse 160
Postfach, 8050 Zurich
+41 58 792 14 97

Guenther leads PwC Legal in Switzerland and the Legal FS Regulatory & Compliance Services department. He is a PwC Partner since 2015 and a global expert on legal advisory, specializing in supporting the structuring, authorization and ongoing lifecycle management of financial intermediaries and their products. He in particular also focuses on leading large scale regulatory change and compliance alignment projects.

Guenther is the author of books on investment selection, FinTech Regulation and European, Swiss and Liechtenstein investment law. He also wrote 80+ publications in international expert magazines and has to date been speaking at more than 60 conferences worldwide.

Guenther Dobrauz received his Masters and PhD degrees in law from Johannes Kepler University (Linz, Austria). He holds an MBA from the University of Strathclyde Graduate School of Business (Glasgow, UK) and has participated in Harvard Business School’s Executive Education Program.

Guenther Dobrauz was Legal Counsel of an international hedge fund group and served as Managing Partner and Legal Counsel of a Swiss Venture Capital firm. He has practiced in court and with a leading business law firm.