The Swiss Financial Market Supervisory Authority has issued regulatory guidance on ICO.

Switzerland is still on the list of the most popular jurisdictions for the organization and development of the activities that are related or based on blockchain, many of which are funded through ICO. In this regard, the Swiss Financial Market Supervisory Authority (hereinafter referred to as FINMA, the Authority) published regulatory guidance on February 16, 2018 determining the direction for future normative regulation in this field. In addition, FINMA has also clarified the expectations regarding the requirements for the requests relating to the application of the Swiss financial markets legislation in the context of the specific ICO projects.

The document, entitled “FINMA Recommendations regarding requests on legislative regulation of Initial Coin Offering”, published on February 16, 2018, is a continuation of the initial recommendations on the legislative regulation of ICO, which were published in September 2017. The purpose of these recommendations of the Swiss Financial Market Supervisory Authority is to inform future and existing market participants about how FINMA intends to respond to the requests for legal and regulatory aspects of ICO. The recommendations also unify the principles which FINMA is guided by when evaluating private projects in accordance with the Swiss law on financial markets, in particular in the field of combating money-laundering and regarding securities.

Among the key points that are covered in the regulatory recommendations, we note the following:

  • Tokens are subject to categorization: there are payment tokens, utility tokens and asset tokens.
  • Depending on the category of the token, the provisions of different legislation apply. At the same time, FINMA reaffirms its approach based on a neutral approach to technology, and stresses the need to determine carefully the ICO compliance with the current Swiss law on a case-by-case basis.
  • FINMA indicated that additional guidance and/or clarifications could be issued in the future if necessary. The preparation of special legislation on such issues in Switzerland in the near future is not provided.
  • In view of the large number of ongoing ICO projects, the new regulatory recommendations, issued in February 2018, provide useful information on procedures and required information, based on which FINMA determines the need for the application of legislation and compliance with a specific project on ICO.
  • FINMA confirms that a certain number of non-disclosed ICOs are checked by the service and again warns from legal risks that arise on organizing or participating in an ICO.
  • In addition to the application of financial market legislation, other important aspects of Swiss corporate, contract and tax law, as well as the regulatory issues of foreign law may need careful analysis before launching an ICO.

Today we will consider the categories of tokens and the application of the Swiss law to the certain types of tokens.

Categories of tokens

Based on the analysis of each individual project, the guidelines of FINMA focus on the economic features of the tokens. The key factor is that the trade in tokens is mainly carried out by transferring them, which occurs as public sale. And, as long as there is no generally recognized classification of tokens, FINMA differentiates three categories for its analysis:

  • Payment tokens (cryptocurrencies) are the tokens that have no special features or links to other development projects. After a while, after accepting, their payment tokens become a means of payment.
  • Utility tokens are the tokens, which purpose is to provide digital access to certain applications or services.
  • Tokens equated to securities are the tokens that provide assets (participation in physical assets, business, earnings, dividend rights, interest payments, etc.). The economic features of such tokens are the same as equities, bonds or derivatives.

Application of Financial Market Law and Regulation

FINMA determined that in practice, the application of regulations related to anti-money laundering and securities regulation are the most relevant. At the same time, the application of other legislative acts, for example, on the regulation of banking activities or normative acts regarding collective investment schemes may be applicable as well.
On the basis of the above-mentioned, FINMA will apply AML- and securities regulation as follows:

  • ICO of payment tokens: It requires compliance with anti-money laundering regulations, if the payment tokens are transferred at the time of issuance. In this case, payment tokens are not considered to be securities.
  • ICO of utility tokens: Pure utility tokens that can be used as of the time of issuance, they can not be treated as securities. However, if the utility token also functions as an investment, then the Authority will treat it as a security.
  • ICO of asset tokens: It is absolutely obvious that such tokens will be treated exclusively as securities.

Legal implications

The application of anti-money laundering regulations triggers several due diligence requirements (identification of beneficial owner, obligation to join a self-regulatory organisation (SRO) or accepting direct FINMA supervision). In addition, the requirements can also be met by accepting the funds through a financial intermediary that is subject to Swiss AML-regulation and that exercises the due diligence requirements on behalf of the issuer.

If tokens are treated as securities, the relevant legislation applies, and the public issuance of shares and bonds in the form of tokens naturally requires compliance with the relevant prospectus requirements.

The application of the provisions of other regulations may cause the necessity of the fulfillment of other requirements, such as, for example, obtaining a licence from FINMA.

Over the past few years, the development of Bitcoin has been increased, which is actively discussed by the governments of different countries. In this regard, the European Union raised some concerns about funding of terrorism, money laundering and tax evasion, which might be related to cryptocurrencies. This is the reason why the European legislator has introduced the concept of cryptocurrency into the Fourth Anti-Money Laundering Directive, where Bitcoin is defined as a “monetary instrument”.
As the European Commissioner for Economic and Financial Affairs Pierre Moscovici notes, to date Bitcoin is not considered as an alternative currency along with dollar or euro due to volatility and much speculation.
It is noteworthy that the differences between the definitions of Bitcoins in the EU Directive and in the US legislation are not significant.
Details of the political discussions regarding the cryptocurrency in the European Parliament and the further legislative prospects for electronic money are still unknown.

Over the past two decades, online commerce has become one of the main ways of doing business. Virtual payments are made simply and quickly by filling out simple forms and making a few mouse clicks. Funds are almost immediately transferred from bank cards and are received on the accounts of companies, then the goods and services are delivered to the customers by mail or in person. However, along with all the apparent perfection of such transactions, they are still under control of banking institutions, which implies a number of limitations.

Fortunately, progress does not stand still and traditional currencies have been replaced by a cryptocurrency - a virtual form of currency that uses blockchain technology and has decentralized nature. In other words, digital coins are a confidential financial system that allows making remittances without information leakage. Thus, an alternative to the use of credit cards and bank accounts to pay for goods and services today is the use of cryptocurrency, and Bitcoin is the most famous version of it.

Accepting payments in Bitcoin has a wide range of advantages for both online stores and offline sales.
Certainly, the decentralized nature of Bitcoin means that everyone can start accepting payments using this innovative system without requiring an account from a third-party provider. But it’s easier, cheaper and safer for many enterprises to pay a small amount to a professional payment processor.
One of the most popular services provided by these payment processors is the instant conversion of Bitcoin (BTC) into the required currency (for example, USD). This possibility is very important, since most businesses that accept Bitcoin payments still have to pay all their own expenses or, for example, buy shares using common financial resources (currencies), and the changes of exchange rate between Bitcoin and local currency may lead to losses.

In addition, payment processors provide you with all the tools you need to accept payments in Bitcoin as easy and convenient way as possible, without need to develop your own software solution.

In this article, I am going to tell about some popular payment processors of Bitcoin. The following payment processors have been selected based on the range of proposed functions, the cost of their use (lower than the cost of credit card payment processors), as well as their reputation for reliability and fair business practices.

First of all, ask yourself a question: what is the main reason that you would like to accept payments in Bitcoin? The most popular answers are the following:

  • To reduce the business costs associated with accepting payments on credit cards.
  • To attract attention and customer loyalty from the created community of Bitcoin enthusiasts.
  • To attract the attention of the media.
  • Because I believe that the world needs Bitcoin.
  • My clients asked me.

So, let’s get down to a brief description of some payment processors.

Bitpay offers one, if not the most complete solution for the sellers who want to integrate the Bitcoin processing into their existing operations.
The company offers a wide range of “plugins” for existing programs for the purchases, including Magenta, OpenCart, Zen Cart, X-Cart, WordPress (Woocommerce, E-Commerce, etc.), Drupal Ubercart and others. Therefore, if you already have a store that works with any of them, the integration of payments into Bitcoin is very simple. If you are just starting business, then cooperation, for example, with Shopify will allow you to create a new store that accepts Bitcoin payments.

Merchants using BitPay can instantly convert all or part of their revenue from sales to another type of currency, including USD, EUR, GBP, CAD, and others. Payments are received daily on your bank account. You are charged a monthly fee for the use of BitPay services, but there is no additional commission for the transaction, therefore, for example, you receive 1 US dollar paid to your bank account, for every $ 1 paid by your customers.

Cryptopay is, first of all, a European service for buying and selling Bitcoin for euro or GBP, but the company also offers a good solution for the merchants.
The difference of Cryptopay is that the system includes a sales application by reading a QR code.
In addition, the websites that accept donations have the option of integrating the “pay now” button, that is very easy to use.

GoCoin offers traders the opportunity to accept payment in Bitcoin or Litecoin.
This allows to integrate easily into existing sites, using different choice of plugins for popular software products for such stores as Magenta, PrestaShop, OpenCart, WooCommerce and many others. In addition to it, there is an API for the developers who want to build their own solutions.

It should be noted that at the moment the market of the companies accepting payments is quite large and it keeps on growing. Thus, anyone can choose the proposal that suits his activity best.