Are Initial Coin Offerings sufficiently covered by existing regulation?

The Securities and Markets Stakeholder Group (SMSG) has published its advice to European Securities and Markets Authority (ESMA) on Initial Coin Offerings (ICOs) and Crypto-Assets on 19 October 2018. The goal of SMSG is to give advice to ESMA on steps it can take to contain the risks of ICO’s and crypto-assets, on top of existing regulation. According to the SMSG Switzerland has an evident proactive approach in regard to ICOs and crypto-assets. Authors: Darko Stefanoski, Orkan Sahin

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The SMSG is a group comprising of academics and industry participants which seeks to help facilitate consultation by the European Securities and Markets Authority (ESMA).

1.What is the SMSG advice to ESMA about? 

The advice covers, in particular, the following topics:

  • Definition of the relevant concepts, including “crypto asset”, “virtual currency”, cryptocurrency, “token” and ICO.
  • Taxonomy of crypto assets, based on the Swiss FINMA distinction between payment tokens, utility tokens, asset tokens and hybrids.
  • Overview of recent ICOs and market developments in respect of crypto assets, and of the most important existing regulations of crypto assets, ICO’s and sandboxes and innovation hubs in 36 jurisdictions: the EU and EEA Member States, Gibraltar, Switzerland, Jersey, Guernsey and the Isle of Man.
  • The question whether and how ICO’s and/or crypto assets should be regulated
  • Potential benefits and risk of payment tokens, utility tokens and asset tokens.
  • Determination whether asset tokens are covered by MiFID II, the Prospectus Regulation, and the Market Abuse Regulation, the SMSG has attempted to determine whether they are financial instruments (for MiFID purposes and the MAR) and transferable securities (for purposes of the Prospectus Regulation).

The SMSG has found Switzerland’s FINMA’s Guidelines for enquiries regarding the regulatory framework for initial coin offering (16 February 2018) useful, based on the economic function of tokens: payment tokens, utility tokens and asset tokens. Further, the SMSG states that Switzerland has an evident proactive approach in regard to ICOs and crypto-assets and that it has expressly legislated or specifically developed methodologies, criteria or guidelines for assessing how and to what extent ICOs could be considered as financial instruments, thus falling under their respective framework of financial services legislation. 

2.What EY offers to support you to launch your ICO in Switzerland

  • Although ICOs are very attractive, the complexity should not be underestimated. EY can support you in managing the complexity throughout the ICO lifecycle and help you to avoid the pitfalls
  • You are seeking support from an advisor who has already successfully supported companies in performing an ICO, including setting up companies that provide regulated services, and who has a strong relationship with FINMA.
  • You are looking for a sparring partner to analyze the impact of raising funds through an ICO and prepare the first visit to FINMA.
  • You need an advisor with in-depth Blockchain and ICO expertise and supported several projects in this field.
  • You want to make sure that a potential licensing process is completed in the shortest possible time to allow you to implement your plans.