As soon as the big cryptocurrencies, like Ethereum , settled on an ICO in Zug canton , the canton has been one of the most popular locales for blockchain-based virtual currencies in the world. An ICO in Zug has been so favourable, and such a good idea for cryptocurrency investors that the canton has literally taken on the nickname, 'the crypto-valley.' In this article we'll take a look at some of the information you'll need to know when launching an ICO in Switzerland, and in particular, why you should consider an ICO in Zug.
The past few months have seen some adaption in the guidelines published by FINMA, the Swiss Financial Market Supervisory Authority, which is the body that governs all financial companies and ICO's in Zug and all of Switzerland. The CEO of FINMA stated that "Our balanced approach to handling ICO projects and inquiries allows legitimate innovators to navigate the regulatory landscape and to launch their projects in a way consistent with our laws protecting investors and the integrity of the financial system."
Now, similarly to most financial regulators, every ICO in Zug or Switzerland will be judged and regulated on its own terms. That means that the regulators, in our case FINMA, will be judging an ICO on economic functions, every unique option offered by the ICO and from that, they will determine which rules and regulations will apply to that individual ICO.
At present, FINMA recognises three different types of tokens individually. These are listed below:
- Payment tokens or cryptocurrencies
- Utility Tokens : which are basically utilised by owners to access applications or services in a digital manner.
- Asset Tokens: which are technically real assets. That means the holder of an asset token truly is part owner of a company, has access to an earning stream or can also collect dividends or interest payments. This means these tokens are analogues to bonds or derivatives and equities
The Swiss Financial Market Authority's Regulation
There a few things you'll have to be aware of when launching an ICO in Zug, and the main framework you'll have to understand is how FINMA regulates. This is where things get difficult as the blockchain and cryptocurrency market is fairly new, and FINMA itself doesn't have a true handle on how things work. So, below we'll go over the distinctions between regulations below.
Two fundamental legislations must be followed regardless of wherever you're launching your ICO in Zug or anywhere else in Switzerland, and those pieces of legislation are the AML or Anti-Money Laundering laws and the KYC or know-your-customer laws. These are enforced on every company operating within the financial industry, and failing to adhere to these will result in major penalties.
On top of these laws, things will get a little more confusing. FINMA outlines that every token classification in their ranks isn't relevant to every crypto business. That means that rules, regulations and restrictions imposed on one ICO aren't necessarily imposed on every other cryptocurrency. That said, you'll have to speak with a legal team to determine exactly what your tokens are considered by FINMA.
Swiss Securities Regulation
As expected, FINMA treats tokens almost exactly the same as securities, which are governed by Swiss securities law. In the same vein as this, FINMA also creates its own distinction between pre-sales and ICO's which are being used as payment tokens or even utility tokens – which are able to be purchased as a service or a product. This means that ICO launches which are providing investors with tokens that can be used as a means to purchase anything will be treated as securities under every circumstance.
However, in some circumstances, a token may be treated a security. These circumstances are below:
If a token provided during an ICO has no way to be used as a security. Which means that there is no platform or any way for an investor to use these tokens are a means to purchase a product or service.
A token is able to act in any way whatsoever, like a security then the ICO will be viewed as the sale of a security.
Tokens and Securities Under Swiss Law
Many ICOs have their offering deemed a security under Swiss law, meaning there are new regulations, control and laws that have to be followed during the ICO.
What if your token turns out to be a security?
In regards to the Swiss Stock Exchange Act, most self-issued uncertified securities are largely unregulated. That means however that there should be a record of all of these securities kept somewhere safe. This is also outlined in the CO or Code of Obligations – all uncertified and self-issued securities must be kept in a detailed record.
If your ICO will be offering securities of third parties, you'll then need to be registered under the Swiss Stock Exchange Ordinance for this to be legal.
To conclude, you may be offering a token which is recognised as, 'analogous to equities or bonds' and this will mean that your ICO will have to meet requirements outlined in the Swiss Code of Obligations.
Money Laundering Regulations for an ICO
A basic way to describe anti-money laundering laws is to say – these laws are in place to prevent the laundering of money which could disrupt the financial system and assist with the funding of terrorism. In Switzerland, under the Swiss Anti-money Laundering Act or AMLA, an ICO could be viewed as a financial intermediary, which means that:
- You're providing payment services
- You're issuing a means of payment
That said, do you, as an ICO in Zug or anywhere else in Switzerland, have to follow rules set out for financial intermediaries? The answer: not always.
In general, only cryptocurrencies and payment tokens can be seen as a solid means of payment when the AMLA is concerned. So typically an ICO is exempt from this, though you will have a lot of due diligence to make sure you don't have to meet all these requirements.
The bottom line: If you're releasing a payment token, then ensure that you meet these requirements:
- Ensure you collect the identity of the owner or the buyer of your token.
- Ensure that you can be regulated by a self-regulated organisation or allow FINMA to directly supervise.
Typically, if you're simply releasing a utility token you won't be subjected to any major AML requirements or anything like that as long as you're only releasing tokens as a non-financial item.
An ICO in Zug by Forming a Swiss Foundation
Due to the Swiss business environment being so friendly and forward thinking when it comes to tax and cryptocurrencies, it's become common practice for investors to move funds raised during an ICO into a Foundation. These Foundations are an entity, and in Zug among other cantons, feature very low tax rates and hence are great ways to store funds in a low tax space.
If you have an ICO in Zug, then you'll have a few things to remember when setting up your Foundation. We've listed a few of these below.
Founders of a non-profit Foundation are unable to have any direct or indirect personal interest in the operation. This can be an issue as it's often common for the founders of a Swiss Foundation to hold a small fraction of the funds from the ICO themselves. If you do happen to hold on to a small percentage, tax authorities are likely to see this as an issue.
In Switzerland, a Swiss Foundation's requirements are extremely inflexible. That means that these Foundations are unable to curve and mould their operations in any way. They should operate entirely independently – and all funds raised during your ICO in Zug are restricted to the promotion of the foundation and its' purpose only.
These strict guidelines are typically good news for investors as it keeps everything in line and leaves little movement – meaning you can focus on Zug and your ICO.
Things to Remember
In every investor's circumstance, there could be a different canton besides Zug that is the best for your individual requirements. Although an ICO in Zug is typically the best option for the majority of investors looking to do an ICO doesn't mean that's your only option.
You'll have to remind yourself that FINMA has the right to remove your payment tokens standing, and is able to change what your ICO's tokens are classified as. It's inconvenient, but you have to be prepared to entirely reshape your plan if these changes are made by FINMA.
The officials at FINMA currently consider Ethereum as a payment token. Although it is true that companies use the virtual currency to pay miners to execute activities like smart contracts, it can also be argued that Ethereum gives users direct access to the currency's platform. That is just one example showing that FINMA's movements and classifications can be a little blurry – and some tokens could be considered a hybrid.
Your compliance with certain regulations like AML and KYC is just one part of meeting requirements. Some cantons might push for extra requirements to be met depending on your nationality, as well as your activities.
The final thing to remember and also consider is that you must get a lawyer to assist with your ICO in Zug or anywhere in Switzerland. The Swiss crypto landscape, although friendly, is also wildly complex. Certainly, get a lawyer.
If you need some further assistance or would like to speak to a professional team about the launch of your ICO in Zug then don't hesitate to reach out to Goldblum and Partners for more information.