FINMA publishes Initial Coin Offering (ICO) guidelines

In its media release of 16 February 2018 the Swiss Financial Market Supervisory Authority FINMA published its long-awaited guidance on Initial Coin Offerings (ICO) which defines the minimum information required and principles for requests for negative clearance.

An ICO is a digital form of public fund-raising for entrepreneurial purposes. Blockchain-based “coins” or “tokens” are sold in exchange for cryptocurrencies (e. g. Bitcoin) or FIAT currencies. The token represents a certain value or service that the issuer defines prior to the ICO.

In its media release of 29 September 2017 FINMA already acknowledged the innovative potential of this technology and pointed out to intersections between ICOs and the applicable financial market laws. In its new guidance FINMA rightly points out that generalized statements with respect to the applicability of financial market laws is not possible due to the variety of tokens and ICOs. Instead, every ICO must be assessed individually on a case-by-case basis.

Types of token

FINMA basically distinguishes between three different types of tokens (although hybrid forms are possible):

  • Payment tokens: These are considered standard crypto currencies. They can be used as means of payment for the purchase of goods or services as well as for the transfer of money and values. They are not associated with any other functions or projects.
  •  Utility tokens: They provide access to a blockchain-based applications or services.
  • Investment tokens: These tokens represent assets (such as shares of companies, revenues or entitlements to dividends or interest payments). Depending on its design, this type of token is similar to a share, bond or derivative financial instrument.

Legal assessment

FINMA came to the conclusion that it is particularly the Anti-Money Laundering and securities regulations that are concerned with respect to ICOs. Conversely, the Banking Act (“BA”) and the Collective Investment Schemes Act (“CISA”) are typically not concerned.

Based on the functionality of the various tokens FINMA makes the following legal considerations with respect to ICOs:

  • Payment ICOs: Payment tokens fall within the scope of the Anti-Money Laundering Act (“AMLA”) but do not qualify as securities under the Financial Markets Infrastructure Act (“FMIA”) and the Securities Trading and Exchange Act (“SESTA”).
  •  Utility ICOs: Utility tokens are basically not qualified as securities provided that they are intended to provide access digitally to an application or service and may be used in this capacity at the moment of issuance. Conversely, if a utility token is also used for investment purposes it is qualified as security.
  •  Asset ICOs: Asset tokens are treated as securities by FINMA.

Combinations of the various types are also possible.

FINMA recognizes the innovation potential of ICOs and the block chain technology but also highlights risks that result for investors.

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Günther Dobrauz
Partner
Leader PwC Legal Switzerland
+41 58 792 14 97
guenther.dobrauz@ch.pwc.com

Tina Balzli
Head Banking
Director
Legal FS Regulatory & Compliance Services
+41 58 792 15 54
tina.balzli@ch.pwc.com

Simon Schären
Manager
Legal FS Regulatory &
Compliance Services
+41 58 792 14 63
simon.schaeren@ch.pwc.com

Mark A. Schrackmann
Assistant Manager
Legal FS Regulatory and Compliance Services
+41 58 792 25 60
mark.schrackmann@ch.pwc.com

Orkan Sahin
Assistant Manager
Legal, FS Regulatory & Compliance Services
+41 58 792 19 94
orkan.sahin@ch.pwc.com

FINMA revises circular on video and online identification

On 18 March 2016, the Swiss Financial Supervisory Authority FINMA brought into force the circular 2016/7 “Video and online identification”. Since then, financial intermediaries have been able to identify new clients digitally, in addition to face-to-face meetings or the opening of a client relationship by correspondence.

In its media release of 13 February 2018, FINMA announced that due diligence obligations in the area of digital client on-boarding are being adapted to technological developments. The draft of the partially revised circular includes the following innovations in particular with regard to the digital identification of new clients:

Video identification

  • In order to ensure secure identification and make the use of counterfeit ID cards more difficult, financial intermediaries should now check at least three randomly selected optical security features of the ID documents (e. g. holograms, laser-tilt images, security thread, micro text, etc.);
  • The formal characteristics (e. g. layout, orthography, font, etc.) are to be compared with references from an identity card database;
  • The verification of the contracting party in the identity process using a one-time password (TAN) will no longer be required;
  • The identification process should now be allowed to continue even if there are indications of increased risks. However, the business relationship shall only be established after additional clarification and approval of a superior person/ management.

Online identification

  • Financial intermediaries should be encouraged to obtain a photograph from all relevant pages of the identification documents. Similar to video identification, the comparison with an ID card database should also be required for the online identification;
  • As an additional safety element, a liveness detection is required;
  • A money transfer from a bank in Switzerland shall no longer be a mandatory requirement. Under certain conditions, money transfers from banks in Liechtenstein or a member state of the Financial Action Task Force on Money Laundering (FATF) should also be sufficient.

FINMA holds a hearing until 28 March 2018. As soon as the revised circular will enter into force, financial intermediaries are required to adapt their video and online identification process within 6 months.

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Günther Dobrauz
Partner
Leader PwC Legal Switzerland
+41 58 792 14 97
guenther.dobrauz@ch.pwc.com

Tina Balzli
Head Banking
Director
Legal FS Regulatory & Compliance Services
+41 58 792 15 54
tina.balzli@ch.pwc.com

Stephanie Kok
Manager
Legal FS Regulatory & Compliance Services
+41 58 792 48 94
stephanie.kok@ch.pwc.com

Mark A. Schrackmann
Assistant Manager
Legal FS Regulatory and Compliance Services
+41 58 792 25 60
mark.schrackmann@ch.pwc.com

UPDATE: FinSA and FinIA: Commission for economy and taxes concluded its debation

The Commission for economy and taxes (WAK-S) concluded the debation relating to the Financial Services Act (FinSA) and the Financial Institutions Act (FinIA). This information has been released in the press today.

Thereby the WAK-S endorsed almost all proposals made by the National Council (Nationalrat). In particular, WAK-S has unanimously approved the possibility for the early entry into force of the Fintech provisions, and has also largely agreed with the National Council on the material provisions relating to Fintech. Thus, there is a good chance that the Banking Act will create a new license category for enterprises that accept public deposits of up to 100 million francs without investing or paying interest. For the new category of companies, simplified approval and operating requirements in the areas of accounting, auditing and deposit securities are to be applied.

However, the following outlines the most significant amendments and changes made to the resolution of the National Council:

  • As opposed to the proposal made by the National Council, WAK-S resolved that the threshold for the obligation to publish a prospectus for public offers of securities shall be increase from 2.5 million francs to 8 million francs.
  • Regarding the „door-to-door selling” (Haustürgeschäft) which is stated in the Swiss Code of obligations, the WAK-S endorsed by the majority to the proposal made by the National Council that the door-to-door selling of banking and financial services shall be exempted. However, the exception shall only be applicable to offers which have been made to existent clients of the financial institution or the bank.
  • The grand-fathering clause which is stipulated in the FinIA shall not be cancelled according to the WAK-S, as opposed to the proposal made by the National Council.
  • Regarding the financial market supervisory act, as opposed to the proposal made by the National Council, the WAK-S resolved that also persons and entities holding a qualified or substantial participation in a supervised institute shall provide the supervisory organization with all information and documents necessary for the performance of its duties.

The Council of States will now take over and could already be debating the topics in its spring 2018 session. Subsequently, the Commission for economy and taxes (WAK-N) as well as the National Council will deliberate, so that the bill has to pass the final hurdle before becoming enacted.

The document regarding comparison of the resolutions of the WAK-S is now available under the following Link.

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Dr. Guenther Dobrauz
Partner
Leader PwC Legal Switzerland
+41 58 792 14 97
guenther.dobrauz@ch.pwc.com

Tina Balzli
Head Banking
Director
Legal FS Regulatory & Compliance Services
+41 58 792 15 54
tina.balzli@ch.pwc.com

Dr. Jean-Claude Spillmann
Head Wealth Management
Senior Manager
Legal FS Regulatory & Compliance Services
+41 58 792 43 94
jean-claude.spillmann@ch.pwc.com

Claudia Thalmann
Assistant Manager
Legal FS Regulatory & Compliance Services
+41 58 792 16 69
claudia.thalmann@ch.pwc.com

MIFID II requirements for direct electronic access (DEA)

Direct electronic access (“DEA”) enables a person to access a trading venue directly, using the trading code of an investment firm to do so, or directly placing an order with the Automated Order Routing (“AOR”) of the investment firm. This gives the client full control of the exact fraction of a second in which the order is placed and the lifetime of the order, as well as discretion as to which broker or trading venue the order is placed with.

Such discretion clashes with the objectives of MiFID II, which aims at increasing market transparency and oversight functions. Therefore, the regulation mandates the investment firm providing DEA to monitor the client closely.

Download full article

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Dr. iur. Guenther Dobrauz
MBA | Partner, Leader PwC Legal Services Switzerland
Office: +41 58 792 14 97 | Mobile: +41 79 894 58 73
Email: guenther.dobrauz@ch.pwc.com

Michael Taschner
Senior Manager | PwC Legal Services Switzerland
Office: +41 58 792 10 87 | Mobile: +41 79 775 95 53
Email: michael.taschner@ch.pwc.com

Yari A. Iannelli
Assistant Manager | PwC Legal Services Switzerland
Office: +41 58 792 28 54 | Mobile: +41 79 742 39 04
Email: yari.iannelli@ch.pwc.com

Dr. iur. Alexandra G. Balmer
Consultant | PwC Legal Services Switzerland
Office: +41 58 792 14 24 | Mobile: +41 79 267 81 04
Email: alexandra.balmer@ch.pwc.com

MiFID II is live- What now?

Despite the launch of MiFID II early this year, there is still ongoing work to be completed and firms are expected to receive new information from the European Commission and the European Securities and Markets Authority (ESMA), even after the implementation deadline of 3 January 2018. Among other things, opinions for 700 pre-trade transparency waivers and for 110 commodity position limits have yet to be finalised by the regulators.

Therefore, firms should stay flexible to immediately implement new information by regulators and adapt and refine their compliance strategies to current regulatory updates regarding MiFID II.

The following key dates highlighted in a timeline shall give firms and their compliance specialists an overview over the current year and beyond.

View timeline

Contact Us

Dr. iur. Guenther Dobrauz
Partner |  Leader PwC Legal Services Switzerland
Office: +41 58 792 14 97 | Mobile: +41 79 894 58 73
Email: guenther.dobrauz@ch.pwc.com

Michael Taschner
Senior Manager | PwC Legal, FS Regulatory & Compliance Services
Office: +41 58 792 10 87 | Mobile: +41 79 775 95 53
Email: michael.taschner@ch.pwc.com

Orkan Sahin
Assistant Manager | PwC Legal, FS Regulatory & Compliance Services
Office: +41 58 792 19 94 | Mobile: +41 79 238 65 69
Email: orkan.sahin@ch.pwc.com

Gregory Columbres
Assistant Consultant | PwC Legal, FS Regulatory & Compliance Services
Office: +41 58 792 18 41 | Mobile: +41 79 417 88 38
Email: gregory.columbres@ch.pwc.com

Free “Corporate Access” provided by brokers is an inducement under MiFID 2

Until recently, compliance departments of investment managers were busy to figure out how they will pay for research. With that being settled now, the topic of “Corporate Access” is moving up on the agenda.

The most critical question in that respect is if “free” corporate access provided by brokers is considered an inducement under MiFID 2.

We think the answer to that is quite straightforward. Read the full article to find out more.

Download here

Contacts

Dr. Günther Dobrauz
Partner, Leader PwC Legal Switzerland
Office: +41 58 792 14 97
Mobile: +41 79 894 58 73
guenther.dobrauz@ch.pwc.com

Michael Taschner
Senior Manager, PwC Legal,
FS Regulatory & Compliance Services
Office: +41 58 792 10 87
Mobile: +41 79 775 95 53
michael.taschner@ch.pwc.com

Orkan Sahin
Assistant Manager, PwC Legal,
FS Regulatory & Compliance Services
Office: +41 58 792 19 94
Mobile: +41 79 238 65 69
orkan.sahin@ch.pwc.com

Equivalence decision about Swiss share trading venues

On December 21, 2017 the European-Commission adopted its decision about trading venues in Switzerland.

According to this decision, trading venues in Switzerland (i.e. SIX Swiss Exchange and BX Swiss) are recognized as equivalent to trading venues in the EU.

Article 23 of the new EU Markets in Financial Instruments Regulation (MiFIR), which will apply in the EU as of 3 January 2018, obliges European investment firms to trade shares on a trading venue in the EU or on an equivalent third-country venue. Therefore, such a ruling was necessary to enable investment firms domiciled in the EU to continue to trade shares on one of the Swiss exchanges.

It must be noted that this equivalence decision applies only to trading venues and not to the rest of the requirements under MiFID II/MiFIR. Furthermore, this equivalence decision about trading venues has been limited to one year, until 31 December 2018.

The Importance of this decision for Switzerland

For the SIX Swiss Exchange, roughly 50% of their CHF 850bn yearly trading volume stems from EU domiciled investment firms, therefore the equivalence decision is essential to the health of the Swiss financial market.

While equivalence has been granted until the end of 2018, legal certainty regarding the future of the Swiss trading industry is being undermined.

Equivalence decision and outlook

Equivalence of a third-country framework is generally granted by the European-Commission if three principles are met:

  1. the requirements are legally binding;
  2. they are subject to effective supervision by local authorities; and
  3. the results achieved are the same as EU rules.

An equivalence decision according to Article 46 et seqq. MiFIR granting Swiss investment firms the access to the European market is outstanding. It is not expected that such an equivalence decision will be taken in the near future, due to the fact that EU regulators are at the moment heavily involved with the realization of Brexit and are therefore not prioritizing this topic.

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Günther Dobrauz
Partner
Leader PwC Legal Switzerland
+41 58 792 14 97
guenther.dobrauz@ch.pwc.com

Martin Liebi
Director
Legal FS Regulatory & Compliance Services
+41 58 792 28 86
martin.liebi@ch.pwc.com

Jean-Claude Spillmann
Senior Manager
Legal FS Regulatory & Compliance Services
+41 58 792 43 94
jean-claude.spillmann@ch.pwc.com

Stephanie Kok
Manager
Legal FS Regulatory & Compliance Services
+41 58 792 48 94
stephanie.kok@ch.pwc.com

Alexandra G. Balmer
Senior
Legal FS Regulatory & Compliance Services
+41 58 792 14 24
alexandra.balmer@ch.pwc.com

The EU’s Anti-Money Laundering Directive will in the future also include “virtual currencies”

In its press release of 21 December 2017, the Austrian Financial Market Authority (FMA) announced that it welcomed the European Union’s agreement to include “virtual currencies” in the provisions on the fight against money laundering. According to the FMA, this is “an important step so that in the future, these online service providers will also have to identify, check and monitor their customers in the same way as the financial institutions in accordance with the usual due diligence obligations and monitor the transactions on an ongoing basis”.

In accordance with the provisions of the new EU Anti-Money Laundering Directive, exchanges for “virtual currencies” and so-called “wallet providers” (electronic wallets) will henceforth also be subject to the provisions of the Anti-Money Laundering Directive. The changes are to be implemented as followed:

  • The Anti-Money Laundering Directive applies to virtual currency swap exchanges where they offer the exchange of virtual currencies for legal currency. However, the Directive does not cover the exchange of different virtual currencies.
  • Providers of electronic wallets (so-called “Wallet Providers”), which manage the respective cryptographic keys of the holders of virtual currencies, are without exception subject to the provisions of the Anti-Money Laundering Directive. Wallet providers are also obliged to register.
  • The Anti Money Laundering Directive introduces for the first time a legal definition of virtual currencies.

As soon as the European process is finalised, legislators are required to implement and transpose the new Anti-Money Laundering Directive into national laws within 18 months.

Contact Us

Guenther Dobrauz
Partner
Leader PwC Legal Switzerland
+41 58 792 14 97
guenther.dobrauz@ch.pwc.com

Tina Balzli
Director
Head Banking, Legal FS Regulatory & Compliance Services
+41 58 792 15 54
tina.balzli@ch.pwc.com

Mark A. Schrackmann
Assistant Manager
Legal FS Regulatory and Compliance Services
+41 58 792 25 60
mark.schrackmann@ch.pwc.com

MiFID II: ESMA grants 6 months period of grace for LEI requirements

On December 20, 2017 the European Securities and Markets Authority (ESMA) has issued a statement to support the smooth implementation of Legal Entity Identifiers (LEI) requirements under the Markets in Financial Instruments Regulation (MiFIR).

Regulatory requirement

MiFIR obliges EU investment firms to identify their clients that are legal persons with LEIs for the purpose of MiFID II transaction reporting. Trading venues equally are obliged to identify each issuer of a financial instrument traded on their systems with an LEI code when making daily data submission to the Financial Instruments Reference data System (FIRDS).

Issues raised by market participants

In the last weeks, ESMA and national competent authorities (NCAs) learnt that not all investment firms will succeed in obtaining LEI codes from all their clients ahead of the entry-into-force of MiFIR on 3 January 2018. The same may be the case for trading venues’ non-EU issuers whose financial instruments are traded on European trading venues.

Six months grace period

In that context, and to support the smooth introduction of the LEI requirements, ESMA will allow for a temporary period of six months that:

  • Investment firms may provide a service triggering the obligation to submit a transaction report to the client, from which it did not previously obtain an LEI code. This is possible under the condition that before providing such service the investment firm obtains the necessary documentation from this client to apply for an LEI code on his behalf; and
  • Trading venues report their own LEI codes instead of LEI codes of non-EU issuers currently not having their own LEI codes.

ESMA statement

Read more

 

Contacts

Guenther Dobrauz
Partner
Leader PwC Legal Switzerland
+41 58 792 14 97
guenther.dobrauz@ch.pwc.com

Michael Taschner
Senior Manager
PwC Legal FS Regulatory & Compliance Services
+41 58 792 10 87
michael.taschner@ch.pwc.com

Peter Wueringer
Senior
PwC Legal FS Regulatory & Compliance Services
+41 58 792 17 48
peter.wueringer@ch.pwc.com

FINMA revises circular “Public Deposits with Non-Banks”

On December 14, 2017 the Swiss Financial Market Supervisory Authority (“FINMA”) published its revised Circular 2008/03 “Public deposits with non-banks”. The revised circular will enter into force on 1 January 2018.

With this revised circular, FINMA defined in more detail the new FinTech regulations on sandboxes and the extended timeframe for settlement accounts introduced by the Federal Council on August 1st, 2017.

FINMA took on the following key suggestions from market participants during the consultation process and implemented them as follows in the revised circular:

  • Regarding the companies’ information obligations in the sandbox area (Art. 6 (2)(c) of the Banking Ordinance), it specified that companies can fulfill their information obligations towards their clients under certain conditions via their websites;
  • In relation to sandboxes, it clarified that the amount of public deposits exceeding CHF 1 million (Art. 6 (4) of the Banking Ordinance) does not have to be reduced during the reporting deadline, the deadline for submitting a licensing application and during the authorisation process. However, it was noted that the company still has to comply with the provisions of Art. 6 (2)(b) and (c) of the Banking Ordinance;
  • Regarding the exemption for the settlement accounts (Art. 5 (3)(c) of the Banking Ordinance), it specified that this exemption does not apply to cryptocurrency dealers as long as their activity is comparable to that of a forex exchange trader.

Contact Us

Guenther Dobrauz
Partner
Leader PwC Legal Switzerland
+41 58 792 14 97
guenther.dobrauz@ch.pwc.com

Tina Balzli
Director
Head Banking, Legal FS Regulatory & Compliance Services
+41 58 792 15 54
tina.balzli@ch.pwc.com

Jean-Claude Spillmann
Senior Manager
Legal FS Regulatory & Compliance Services
+41 58 792 43 94
jean-claude.spillmann@ch.pwc.com

Stephanie Kok
Manager
Legal FS Regulatory & Compliance Services
+41 58 792 48 94
stephanie.kok@ch.pwc.com