Cryptoassets for investment and financing in Switzerland

Cryptoassets for investment and financing

What attributes do the regulators consider in determining whether a cryptoasset is subject to regulation under the laws in your jurisdiction?

According to the Swiss Financial Market Supervisory Authority (FINMA), the applicable regulation depends on the type of cryptoasset. In its initial coin offering guidelines, FINMA differentiates between the following types of cryptoasset:

• Payment tokens – payment tokens (synonymous with cryptocurrencies) are tokens which are intended to be used, now or in the future, as a means of payment for acquiring goods or services or as a means of money or value storage or transfer. Cryptocurrencies give rise to no claims on their issuer. Payment tokens do not qualify as securities. However, collecting or transferring such cryptoassets will usually be subject to the Anti-money Laundering Act (AMLA).
• Utility tokens – utility tokens are tokens which are intended to provide access (digitally) to applications or services by means of a blockchain-based infrastructure. If a utility token serves solely or partially as an investment in economic terms, FINMA will treat such tokens as securities (ie, in the same way as asset tokens).
• Asset tokens – asset tokens represent assets such as a debt or equity claim against the issuer. Asset tokens promise, for example, a share in future earnings or future capital flows of the issuing entity or the platform. In terms of their economic function, therefore, these tokens are treated analogous to equities, bonds or derivatives (securities). Generally, tokens which enable physical assets to be traded on a blockchain also fall into this category. FINMA regards asset tokens as securities, which means that there are securities law requirements for trading in such tokens, as well as civil law requirements under the Swiss Code of Obligations.

The individual token classifications are not mutually exclusive – for example, both asset and utility tokens can also be classified as payment tokens (referred to as ‘hybrid tokens’).

Depending on the type of cryptoasset, different laws may apply.

How are investors in cryptoassets classified and treated differently?

There are three main types of investor in connection with financial services according to the Financial Services Act (FinSA):

• institutional clients, such as banks and securities houses;
• professional clients, such as financial professionals; and
• retail clients, which essentially refers to consumers who do not fall under the previous two categories.

High-net-worth individuals may declare to be treated as professional clients for investment purposes.

What rules and restrictions govern the conduct of, and investment in, initial coin offerings (ICOs)?

No uniform law governs ICOs in Switzerland. Depending on the qualification of the specific cryptoasset, different provisions may apply. There are no requirement for an authorisation from FINMA to conduct an ICO, unless a cryptoasset is deemed to be a derivative or if the issuer has a repayment obligation. In such cases, an authorisation as a securities house or a banking licence may be necessary. The banking licence is the highest regulated category of financial market participation.

An ICO of a payment token triggers obligations under the AMLA. However, payment tokens qualify as securities as long as they are not (yet) operational on a blockchain.

An ICO of a utility token is not subject to the AMLA if the functionality of the token mainly pertains to access to a blockchain for mainly non-financial purposes. If a utility token functions solely or partially as an investment in economic terms, FINMA will treat such tokens as securities.

An ICO of an asset token may lead to the obligation to publish a prospectus or basic information sheet according to FinSA.

Generally, four stages in an ICO can be distinguished in Switzerland:

• Pre-financing stage – investors are offered only the prospect that they will receive tokens at some point in the future and the tokens or the underlying blockchain remain to be developed. There are no tokens that are transferable on a blockchain at this stage.
• Pre-sale (voucher) stage – investors receive tokens which entitle them to acquire or receive different tokens at a later stage (conversion/exchange required).
• Pre-operational stage – the tokens’ main functionality is ready, but it cannot yet be used at the point of issuance because the application, platform or underlying blockchain remains to be developed or requires completion. No conversion of the tokens will be necessary once the development of the platform or underlying blockchain is completed.
• Operational stage – the tokens’ main functionalities are ready and can actually be used in the intended way on a functional blockchain, application or platform at the point of issuance.

What rules and restrictions govern the conduct of, and investment in, security token offerings (STOs)?

As stated above, the offering of cryptoassets qualifying as securities only leads to an authorisation requirement if the cryptoassets in question are derivatives or if an intermediary places the securities on behalf of the issuer in the primary market (a securities house licence).

In connection with a public offering, according to the FinSA issuers of securities must publish a prospectus to be reviewed and approved by a reviewing body authorised by FINMA. Exceptions to this rule are specified in the FinSA and include:

• offerings to professional investors;
• offerings to fewer than 500 investors;
• offerings to investors that invest more than Sfr100,000;
• offerings of securities that have a minimal denomination of Sfr100,000; and
• offerings which are limited to a total amount of Sfr8 million.

Further, if securities are offered to retail investors, the issuer is generally required to draft a basic information document.

What rules and restrictions govern the issue of, and investment in, stablecoins?

The regulation of the Swiss financial markets is technology neutral and principle based. For stablecoins, based on the stablecoin supplement to the ICO guidelines FINMA follows the same approach as is taken for blockchain-based tokens, focusing mainly on the economic function and purpose of a token ('substance over form'). Depending on the case, FINMA will follow the renowned principle of same risks, same rules, as well as the relevant features of each case. 

Since stablecoins can vary considerably, the requirements under supervisory law may differ depending on which assets (eg, currencies, commodities, securities or real estate) the stablecoin is backed by or pegged to, and the legal rights of its holders. Banking, fund management, financial infrastructure, money laundering and securities trading regulations can all become relevant.

Are cryptoassets distributed by airdrop treated differently than other types of offering mechanisms?

Generally not, but in certain cases anti-money laundering provisions may apply. If the airdrop is done without any activity by the receiving party, the receiving party has made no investment decision and therefore there is generally no prospectus requirement.

What laws and regulations govern the advertising and marketing of cryptoassets used for investment and financing?

Cryptoassets used for investment or financing usually qualify as securities and trigger the prospectus and basic information sheet requirements of the FinSA with the issuer and the duties of conduct under the FinSA at the point of sale with the financial services provider. In particular, advertising for financial instruments must be clearly recognisable as such. The advertising must refer to the prospectus and basic information sheet for the respective financial instrument.

In all other cases, there are no strict provisions regarding advertising. However, laws regarding unfair competition and criminal statues concerning fraud must be observed.

Are investors in an ICO/STO/stablecoin subject to any restrictions on their trading after the initial offering?

Generally not, except any potential transfer restrictions imposed by the issuer based on securities laws or derivatives trading obligations.

How are crowdfunding and cryptoasset offerings treated differently under the law?

In connection with Swiss regulations, four categories of crowdfunding must be differentiated: crowd-donating, crowdsupporting, crowdlending and crowdinvesting:

Generally, only the debt-based crowdlending and the equity-based crowdinvesting platforms are currently subject to the AMLA.

Crowdlending may lead to the requirement of a banking licence according to the Banking Act. However, depending on the amount of funds raised, certain exemptions and reliefs may apply. In particular, the so-called ‘fintech licence’ is available for innovative projects not collecting more than Sfr100 million from the public and neither investing those funds nor paying interest. This licence provides for many reliefs regarding capital and organisational requirements. Depending on the structure, crowdinvesting may trigger collective investment scheme regulations.

What laws and regulations govern cryptoasset transfer agents and share registrars?

There are no specific laws governing such services. Generally, the AMLA will have to be observed for transferring any kind of cryptoasset qualifying as a financial instrument. In particular, changing cryptocurrency into another cryptocurrency or fiat currency is considered to be money exchange or remittance, and therefore is subject to the AMLA. In addition, the provision of transfer services of cryptoassets will trigger anti-money laundering obligations if the service provider conveys over the private key of its clients.

What anti-money laundering (AML) and know-your-customer (KYC) requirements and guidelines apply to the offering of cryptoassets?

The AMLA and the corresponding ordinance stipulate the obligations that must be performed by financial intermediaries subject to said laws.

As stated above, in general, only an ICO of a payment token or hybrid token with payment functions is subject to the AMLA. However, AML/KYC requirements are often triggered if a financial intermediary is involved in a transaction.

Natural or legal persons offering services regarding cryptoassets within the scope of the AMLA must join a self-regulatory organisation. Those private self-regulating bodies recognised by FINMA will impose their own rules and supervision regarding AML compliance on their members.

Within the scope of the AMLA, the following typical duties apply:

• client identification;
• verification of beneficial ownership;
• politically exposed person and sanction checks;
• source of funds;
• enhanced due diligence in the case of high risks or red flag within the client relationship. In the context of the additional clarifications, further background information on the business relationship must be obtained. Depending on the circumstances, the origin, intended use or background of the assets contributed or deducted, the origin of the assets or the business activities of the customer or the beneficial owner must be clarified;
• documentation duties;
• notification duties; and
• freezing of assets.

The extent of the aforementioned obligations may vary depending on the services or activities as well as on the amount of Swiss francs collected or transferred.

There are no specific rules, guidelines or established practices regarding the identification of the providence of cryptoassets or the proof of ownership of such assets. However, such checks must be performed in order to comply with the AMLA.

What laws and regulations apply in the context of cryptoassets to enforce government sanctions, anti-terrorism financing principles, and Financial Action Task Force (FATF) standards?

The Federal Embargo Act and the corresponding ordinances regarding specific sanctions towards certain countries, people and organisations restrict the provision of certain services, the sale of goods and the financing of such persons. International sanctions imposed by the United Nations are directly applicable in Switzerland. These sanctions must be regularly observed, particularly when providing financial services. Business relationships with sanctioned persons may not be formed and if they have, they must be terminated.

Anti-terrorism financing principles of the United Nations and the FATF are implemented by the Federal Embargo Act and by the AMLA – in particular, the enhanced due diligence and notification duties.

Law stated date

Give the date on which the above content is accurate.

16 December 2019.