Swiss regulator FINMA investigates several ICO cases to decide on possible regulatory breaches

Maria Nikolova

Given a certain resemblance between ICOs and conventional financial-market transactions, one or more aspects of financial market law may already cover ICO campaigns according to their various models, FINMA says.

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The Financial Market Supervisory Authority (FINMA) of Switzerland is examining the booming segment of initial coin offerings (ICOs), the regulator announced today. FINMA has also indicated that it is investigating a number of ICO cases in order to determine whether certain regulatory provisions have been breached.

Lately, the regulator has observed a significant rise in ICOs, either conducted in or offered from Switzerland. FINMA stresses that the structure of ICOs varies markedly in each case. It also emphasizes that ICOs are currently not governed by specific regulations, either globally or in Switzerland. Depending on how an ICO is structured, however, some parts of the procedure may already be covered by existing regulations.

More precisely, this concerns the following areas:

  • provisions on combating money laundering and terrorist financing;
  • banking law provisions;
  • provisions on securities trading;
  • provisions set out in collective investment scheme legislation.

Due to a certain resemblance between ICOs and conventional financial-market transactions, one or more aspects of financial market law may already cover certain ICO campaigns. FINMA said it was looking into a number of different cases. Whenever the regulator is notified about ICO procedures that violate regulations or which seek to circumvent financial market law, it launches enforcement proceedings.

FINMA warns that it cannot rule out that ICO activities may be fraudulent, especially given the latest market developments.

Indeed, today’s announcement by FINMA about ICOs is published less than a fortnight after the regulator said it had taken action against providers of fake cryptocurrency E-Coin.

FINMA has found at least since 2016, the QUID PRO QUO Association has been issuing E-Coins, a crypto currency developed by the association itself. In cooperation with DIGITAL TRADING AG and Marcelco Group AG, the association provided interested parties with access to an online platform on which E-Coins could be traded and transferred. The three entities accepted funds amounting to at least CHF 4 million from several hundred users and operated virtual accounts for them in both legal tender and E-Coins.

FINMA noted that these activities are similar to the deposit-taking business of a bank and are illegal unless the company in question holds the necessary licence. FINMA has launched enforcement proceedings against those involved. The regulator has liquidated the association and the two companies.

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