The Swiss Financial Market Supervisory Authority FINMA has published its guidance on how it intends to apply financial market legislation to the field on initial coin offerings (ICOs).

The regulator said that currently there is no ICO-specific regulation and as all ICOs may not fall under the scope of the financial market legislation, they need to be considered on a case-by-case basis.

FINMA said that it will focus on the economic function and purpose of the ICO tokens for assessing them. It has categorized the tokens into payment tokens, utility tokens, and asset tokens. Accordingly, the regulator sets out its approach to assessing these ICOs:

• “Payment ICOs: For ICOs where the token is intended to function as a means of payment and can already be transferred, FINMA will require compliance with anti-money laundering regulations. FINMA will not, however, treat such tokens as securities.
• Utility ICOs: These tokens do not qualify as securities only if their sole purpose is to confer digital access rights to an application or service and if the utility token can already be used in this way at the point of issue. If a utility token functions solely or partially as an investment in economic terms, FINMA will treat such tokens as securities (i.e. in the same way as asset tokens).
• Asset ICOs: 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 (e.g. prospectus requirements).”

In addition, FINMA recognizes that there could be hybrid ICOs:

“ICOs can also exist in hybrid forms of the above categories. For example, anti-money laundering regulation would apply to utility tokens that can also be widely used as a means of payment or are intended to be used as such.”

Highlighting the innovative potential of the underlying blockchain technology, FINMA said that it supports the federal government's Blockchain/ICO Working Group in which it is participating.

"The application of blockchain technology has innovative potential within and far beyond the financial markets. However, blockchain-based projects conducted analogously to regulated activities cannot simply circumvent the tried and tested regulatory framework,” FINMA CEO, Mark Branson comments. “Our balanced approach to handling ICO projects and enquiries allows legitimate innovators to navigate the regulatory landscape and so launch their projects in a way consistent with our laws protecting investors and the integrity of the financial system."