CURRENT ACCOMMODATION OF COINS OR ICO FROM VIEW OF SWISS law
The initial placement of coins, or, as it is also called ICO in Switzerland is considered an irregular method of involving an investment in a project. In essence, it is the issue of digital coins or tokens that are used to create a new cryptocurrency or created based on one of the available ones.
Often, the ICO technique is used as an alternative way to raise funds.
However, released tokens are verified and controlled legally. States such as the United States and Singapore have established their own methods of regulating digital currency.
MAIN FEATURES OF WORK WITH ICO PROJECTS
Creation and transfer of tokens occurs due to distributed registry technology or blockade technology. The first thing is the White Paper – a specific document written in the program code that governs the methods of financing and payment of the ICO project.
In essence, buying a token, a customer invests in the product development process, whether it is a new software, platform or any other idea. The essence of the token itself can be expressed in different ways: access to a product, permission to use software, display of membership in a team of a project, or simply a token can be a tool for obtaining a share of profit from the final development.
Moreover, acquired tokens can be realized on the secondary market after the project is launched. Also, it can be done on various digital exchanges and platforms.
Obviously, the main goal of most of the ICO projects is to attract investors. Based on Swiss law, Tokens are a type of security or a peculiar financial instrument in the event that they fall into one of the following categories:
- securities (for example, interest in equity);
- loans;
- derivatives;
- contributions.
There is a high probability that a token will be treated as a financial instrument or a security if the investor purchases it and then simply waits for changes in value on the secondary market. In this case, the activity of the ICO Startup will be monitored on the basis of the legislative framework for banks, securities and investment.
The current legislation in Switzerland does not yet regulate the work with those tokens that were issued recently and are not considered as a security or financial instrument.
METHODS OF EVALUATION OF TOKEN PROJECT
In each individual case, it is necessary to analyze the nuances of issued tokens. The assessment should be based, first of all, on the White Paper, which describes them as much as possible.
For example, you can use the following evaluation criteria based on the rights:
- to develop or refine the functionality for a particular register;
- admission to the system;
- for the free operation of the services and products of the system;
- on sales of products;
- to support the system through the execution orders of the creators or any other actions affecting the outcome of the work;
- voice, full access to information and exchange of views.
Most likely, those tokens that have a part, and sometimes only one of the following rights, will be considered as a security or a financial instrument:
- Making a financial contribution to the project for the expected profit, expressed in the receipt of payments, interest or simply increase the value of tokens.
Also, in cases where the expected profit is based on the entrepreneurial activity or coordinating actions of other persons.
Moreover, even with the right to vote, investors can not effectively control the development of the project. - The participation and the size of the share from the proceeds or losses incurred, as well as the division of assets and liabilities, are clearly defined.
- In case of obtaining the status of a creditor or a participant.
- When claiming bankruptcy, as a shareholder or creditor.
- If effective management of the project is available to the holder of the obligation to repay / return received from the token of finance or the board of the issuer.
In the event of any doubt as to any of the above points, it is worth asking FINMA as the Swiss Regulator for the supervision and control of the financial market.
PRINCIPLES OF WORK OF THE BODY
FINMA works on the following principles:
- Cryptocurrency Bitcoin and Etherium are considered a full-fledged payment instrument. They can be sold with the subsequent enrollment on an electronic wallet in case of compliance with AML rules (money laundering protection).
- ICO projects are considered within the framework of existing legislation developed for financial markets. Currently, Switzerland does not have a specific methodology for working with ICO business systems.
- Laws on financial markets apply when it is possible to unambiguously answer the question whether it is possible to classify tokens in the role of securities and / or financial instruments. I
f the answer to this question is positive – the project activity is regulated by the relevant legislation of the chosen jurisdiction.
It is a series of laws that control processes at stock exchanges, mechanisms for working with securities and investments, as well as the work of banks. In addition, laws relating to money laundering are taken into account.
FINMA suggests assessing whether there is a need for a special permit to launch an ICO project based on information provided by the creators.
This body is not charged with analyzing the ICO issues relating to civil law, or the laws regulating taxation.
WORK ON THE SECOND MARKET
Quite a long time is a labor-intensive process known as KYC (Know your client), because it implies personal contact and work of the parties. This is a significant barrier to working in the digital world. However, there are a number of jurisdictions that use a technique that circumvents the need for personal contact. For example, this may be the process of identifying a user through a video.
It is worth remembering that the KYC methodology adopted in one country may not be recognized in other states. Working with tokens in the secondary market, whether depositing, replicating or selling, is always an important process that should fully comply with the existing law of the chosen jurisdiction.
In addition, for the project to work in each jurisdiction, it must be specified which particular investors have the right to acquire tokens. This can be a user, an experienced investor, etc.
CHOICE OF CORPORATE FORM OF THE COMPANY – THE TOKEN EMITENT
Most developers have taken the ideal model of the Ethereum Fund and are keen to create a similar project.
In the early stages of foundation creation, there are a number of advantages, such as independence from property. However, they are faced with shortcomings that will appear later. This is a “locked box” (the lack of opportunity to receive finance for anything other than work for the purposes of the fund), the strict structure and nuances of taxation.
In addition, despite the lack of ownership as such, management board (or council) implies control over the fund itself. There is no public access to information about the project’s founders.
In any case, it is necessary to check the project and get an expert assessment.
For example, in the case of LLC it is possible to make public access to information regarding the nuances of ownership. This is due to the fact that each shareholder is required to register with the state commercial registry.
Whatever corporate form has been chosen, one should always allow the possibility that the court may change its position. Especially if the activity of the project has fallen into the sphere of legislation concerning financial markets.
SUBMIT THE RESULTS
ICO is a new kind of work with projects with the help of unique investments. There is no way to hold a general qualification due to a wide selection of possible tokens.
Each of them should be evaluated and analyzed separately. If his functions are largely financed by the project, the legislation on the regulation of the functioning of financial instruments applies.
Eternity Law International Lawyers will provide full consultation and answer your questions. You can contact us by phone, as well as get advice in chat or directly in the company’s office.