Legal Guide for a Token Launch in Switzerland
Switzerland is a known powerful hub for blockchain and cryptocurrency projects thanks to its clear and web3-friendly laws and regulations along with an overall supportive environment for innovative ventures. Launching a token here can open doors not only to the necessary capital but also to an overall growth booster.
Swiss-based ventures enjoy a higher level of credibility due to Switzerland’s strong reputation globally as a leading financial center. At the same time, navigating the legal landscape around your token project is crucial to ensure a long-term success. This guide highlights the key legal steps to ensure a successful and compliant token launch in Switzerland.
Understanding Swiss Regulatory Bodies and Laws
Switzerland’s regulatory framework for tokens and blockchain is mainly overseen by the following authorities and institutions:
- Swiss Financial Market Supervisory Authority (FINMA): FINMA oversees financial markets and ensures companies follow Swiss financial market laws. When launching tokens, you need to follow FINMA’s guidelines, especially the ICO guidelines 2018. For specific rules on stablecoins and blockchain-based infrastructure, refer to the FINMA Stablecoin Guidance.
- Self-regulatory Organisations for Anti-Money-Laundering (SRO or AML SRO): Companies that provide crypto-related financial services must adhere to AML regulations, which include robust client identification and monitoring procedures. By joining an SRO, businesses can ensure compliance without directly engaging with FINMA, as SROs are responsible for overseeing their members’ adherence to AML standards. This system provides flexibility and a structured approach to regulatory compliance, crucial for companies operating in the fast-evolving crypto sector.
Classification of Tokens
FINMA classifies tokens into three main types:
- Payment Tokens (aka Cryptocurrencies): As the name suggests, these tokens are used for payment, Bitcoin (BTC) being the most prominent example. With respect to the token issuance, the AML regulations are most likely to apply, meaning – practically speaking – that the KYC processes will need to be in place as required by the AML regulations.
- Utility Tokens: These provide access to a specific application, product, or service within a blockchain. An example of a utility token could be a “GymPass Token” issued by a fitness platform. This token provides access to specific services within the platform, such as booking workout classes and accessing fitness content. However, if it contains a payment function, it can be considered as a hybrid token and thus the payment token regulations would also apply to it.
- Asset Tokens: Asset tokens represent assets such as shares in companies, debt instruments, or rights to earnings or dividends. They are similar to traditional securities and can be seen as an investment in a company’s equity or debt. Asset tokens fall under the same regulatory framework as securities and must comply with the relevant financial market regulations.
- Hybrid Token: FINMA also recognizes that tokens can exhibit characteristics of more than one category. These hybrid tokens might serve multiple functions, such as acting both as a payment method and providing access to services, or representing both a utility and an investment. When a token falls into multiple categories, it must comply with the combined regulatory requirements applicable to each classification, meaning it may need to meet the rules for both payment systems and securities.
Legal Structure and Corporate Setup
Choosing the right legal structure is crucial for a token launch. Common options include:
- Swiss Foundation: This structure is used when supporting a decentralized network or protocol. Foundations are common for open source blockchain projects that use utility tokens to encourage participation. Switzerland is home to multiple leading L1 protocols which have chosen Foundation as their legal form, Ethereum Foundation being one of the most prominent examples.
- Swiss Association: A Swiss Association is another popular legal structure for blockchain projects due to its simplicity and flexibility. It is a non-profit entity, ideal for community-driven or decentralized initiatives. It is one of the most common legal wrappers for DAOs. Setting up an association is straightforward, requiring minimal capital and at least two founding members. It has its own legal personality, allowing it to enter contracts and own assets independently of its members.
- Limited Liability Company (GmbH) or Company Limited by Shares (AG): It is also possible to launch a token through a for-profit corporate entity. Commonly, such entity would be a legal wrapper for a DevHouse, which the token launch itself takes place through a non-profit Swiss Foundation or a Swiss Association.
- Branch or Subsidiary: Foreign companies can set up a branch or subsidiary in Switzerland to benefit from its favorable regulatory environment for blockchain technology. For example, if your developers are currently working under the umbrella of a Cayman, BVI or UK entity, you might consider a subsidiary in Switzerland for a more »clean« setup.
Anti-Money Laundering (AML) and Know Your Customer (KYC) Requirements
AML regulations in Switzerland require that businesses implement measures to prevent and detect money laundering activities. For entities involved in token sales, this means establishing procedures to monitor and report suspicious transactions. Whether you are subject to the AML & KYC requirements depends on the category of the token being launched. If the AML regulations apply to your token launch, you will have to register with a Self-Regulatory Organization (SRO).
KYC is a critical component of AML compliance. KYC processes are designed to verify the identities of participants involved in token transactions. In Switzerland, companies must collect personal information from their customers, such as name, address, and identification documents, to confirm their identity. This verification helps prevent anonymous transactions that could be exploited for illegal purposes. By adhering to these AML and KYC requirements, companies not only align with Swiss regulatory standards but also enhance trust and credibility among investors and stakeholders.
Given the severity of sanctions and reputational consequences for violation the applicable laws, it is essential that you consult experienced legal advisors in the jurisdiction in which you plan your token launch.
Securities Regulations
Launching a token in Switzerland can be a structured process thanks to FINMA’s clear regulatory guidelines. To benefit from Switzerland’s blockchain-friendly legal environment, it is essential to understand how your token will be classified from the FINMA’s perspective, as the exact requirements depend on token’s specific functionality.
One of Switzerland’s most commonly known advantages is the possibility to request a so-called no-action letter from FINMA prior to the launch event, which provides further clarity on the regulatory treatment of the token. Given the complexities of blockchain technology, it is advisable to consult with a digital-native lawyer who has a deep understanding of both the regulatory framework and the underlying technology to ensure compliance and a successful launch.
Drafting a White Paper for your Token Launch
A white paper in a token launch is a detailed document that outlines the project’s objectives, technology, and business model, providing potential investors with essential information about the token offering. It includes specifics on the token’s utility, the technological framework, and the roadmap for project development. It is important to keep in mind the legal significance of the contents of a white paper
In light of the newly introduced MiCA regulations in the EU, it sis important to keep in mind that Switzerland has its own regulatory regime. In practice, if a Swiss-based entity is active in the EU, it is likely to be subject to both sets of regulations. When drafting a white paper for your token launch, it’s crucial to consider regulatory frameworks. The EU’s MiCA regulation provides detailed rules for crypto-assets, focusing on transparency and investor protection. In contrast, Switzerland’s FINMA guidelines take a more flexible, case-by-case approach, classifying tokens as securities, utilities, or payments. Aligning your white paper with both regimes ensures compliance and minimizes risks. Consult legal counsel experienced in both jurisdictions for a smooth launch.
Conclusion
Launching a token in Switzerland has many advantages, including clear regulations, strong investor protection, and opportunities to use blockchain technology in capital markets. As in any serious business deal, careful planning and compliance with Swiss laws are essential to the project success.
