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There are only a few specific laws in Switzerland for blockchain technology. Blockchain projects are governed by the regulatory regimes of the industries to which they are applied, such as finance. The Swiss regulator took notice of cryptocurrencies early on: in June 2014, FINMA published a fact-sheet on Bitcoin and confirmed that Bitcoin is a currency (i.e., that it is not required to have a license to make payments with it). Swiss, and in particular the canton of Zug, became one of the world's hubs for initial coin offerings after the Ethereum ICO, which took place between July and September 2014. After that, the fintech world was captivated by a number of high-profile ICOs. Although its fintech desk was willing to grant negative clearances to projects submitted, FINMA did not provide specific guidance at that time.¹

FINMA published the ICO Guidelines on 16 February 2018, which describe in some detail how it deals with the Swiss regulatory framework for initial coin offerings (ICOs). In doing so, it specifies the principles on which it will base its responses to specific inquiries, as well as a checklist of information that must be submitted as part of a negative clearance request. The FINMA website contains these ICO Guidelines, which were amended on 11 September 2019 to address stablecoins more specifically. Although the ICO Guidelines provide some guidance on regulatory matters, they do not address issues of civil or criminal law, so specific legal advice is still needed for any ICO or security token offering (STO).²

The ICO guidelines make it clear that FINMA is still open to reviewing ICOs and STOs, with the possibility of denying clearance on regulatory grounds. When assessing a project,FINMA looks at a number of factors, including targeted investors and AML regulations; the functions and rights conferred by the token; technologies such as distributed ledger and open source; technical standards like Ethereum ERC20; as well as wallets and token transfer protocols.¹

Tokens are divided into three categories by FINMA:

1. payment tokens (i.e., cryptocurrencies), which are intended to be used as a means of payment and do not grant any claims against the issuer of the token;
2. utility tokens, which grant access to an application or service; and
3. asset tokens, which represent assets such as a debt or equity claim against the issuer, or that enable physical assets to be traded on the blockchain. ¹

Tokens that combine functions of more than one of these categories are considered hybrid tokens and must meet the requirements of each category.¹

According to Swiss law, FINMA uses the FMIA definition to determine whether tokens qualify as securities. For the time being, FINMA will not consider payment tokens to be securities; utility tokens will only be considered securities if they have an investment purpose at the point of issue. Asset tokens will be considered securities.¹

Unless they qualify as derivative products, uncertificated securities and their public offering are not regulated, according to FINMA. Underwriting and distributing security tokens of third parties publicly on the primary market is a licensed activity, however. Prospectus requirements may also apply to tokens that are similar to bonds or shares.¹

In the opinion of FINMA, tokens do not qualify as deposits; therefore, they do not require a banking license unless they grant debt capital claims against the issuer (FINMA took action against Envion for this reason). If funds received by an Initial Coin Offering are managed by a third party, collective investment scheme regulations may apply.¹

Issuing payment tokens will require the application of AMLA provisions if they are able to be moved via a blockchain infrastructure. In contrast, utility tokens will not trigger the use of AMLA as long as their main function is to provide access to a non-financial utilisation of the blockchain technology. FINMA has clarified that the implementation of the AMLA would not only come into play when exchanging a cryptocurrency for a fiat currency, but also when trading it against another cryptocurrency. Asset tokens, however, are not taken into account as legal tender by AMLA.¹

Pre-sale rights are considered securities by FINMA if they are standardised and suitable for mass standardised trading.¹

There is no separate tax regime applicable to digital currencies and tokens. Cryptocurrencies and tokens are therefore taxed like any other traditional investment vehicles. The majority of tokens are not subject to VAT, issuing taxes, or withholding taxes when they are issued, with certain exceptions. Capital gains derived from privately held assets are not subject to taxes in Switzerland.¹

Swiss residents outside Switzerland may be offered tokens, but similar requirements apply to tokens issued in Switzerland. Security tokens may not qualify as derivative products, they may not be offered by a third party as a professional service, and they may require a prospectus if they resemble bonds or shares.¹

Digital assets in Switzerland

Fintech in Switzerland

Fintech in other countries

Notes

1. https://thelawreviews.co.uk/title/the-financial-technology-law-review/switzerland
2. http://www.finma.ch/en/news/2018/02/20180216-mm-ico-wegleitung/