First of all, specialized crypto or blockchain related regulations or guidelines influence the decision to relocate the crypto business to the country.
Switzerland was one of the first countries in the world which introduced ICO guidelines in February 2018 defining:
- Payment tokens as synonymous with crypto currencies and having no further functions or links to other development projects. Tokens may in some cases only develop the necessary functionality and become accepted as a means of payment over a period of time.
- Utility tokens are tokens which are intended to provide digital access to an application or service (white paper publication, non-action letter from FINMA, no prospectus needed)
- Asset tokens represent assets such as participation in real physical underlyings, companies, or earnings streams, or an entitlement to dividends or interest payments. In terms of their economic function, the tokens are analogous to equities, bonds or derivatives.
Asset token are defined also as any type of investment while requirements for normal securities are to be fulfilled like publication of prospectus and in certain cases dealer’s license.
In 2017 a couple of Liechtenstein and Swiss banks started opening accounts for ICOs and other crypto projects. In September 2018 Swiss Bankers Association published detailed guidelines for banks for opening bank accounts for blockchain projects. By now there are over 10 banks which work with crypto.
Recently FINMA introduced simplified license for fintech projects:
The Fintech license is subject to certain conditions relating to, inter alia, the institution’s organization, risk management, compliance, accounting and minimum capital (at least CHF 300,000 or 3% of deposits). Such conditions are e.g. that an institution with a Fintech license must have its registered office and conduct its business activities in Switzerland.
In December 2018 the Federal Council adopted a report on the legal framework for blockchain and distributed ledger technology (DLT) in the financial sector, where clarifications for the following activities for blockchain projects are provided inter alia:
- Requirements for ICOs
- Banking authorization and exemptions
- Crypto exchanges etc.
In general, also the following factors make Switzerland competitive towards Malta, Estonia and other crypto friendly countries:
- Stable economic and political situation
- Extremely well established and operating legal framework especially in the financial sector (sorry could not resist to underline it as a lawyer): especially regarding protection of investors
- Well established financial sector infrastructure. There are hundreds of banks, wealth management and insurance companies
- Quite low taxation and business friendly state environment
Major disadvantages currently are:
- No or limited access to European market
- Costs of approvals or licenses (including company set up, attorneys, minimum capital ect.) for blockchain projects are high
- Terms for getting an approval or license are pretty long (for STO on average 6 months, securities dealer license for an exchange around 12 months etc.)
Financial Market Authority Liechtenstein (FMA) has also published ICO factsheet in September 2017.
As one of the first in the world Liechtenstein has already introduced Blockchain Act (Trustworthy Technology Act) to be enacted in the beginning of 2019 (Liechtenstein Blockchain Act in English (not official translation)) and our summary of Liechtenstein Blockchain Act.
The Blockchain Act defines token as embodiment of rights, conditions for disposal over token and relationship: person, token and related assets.
The following activities will require special registration under the Blockchain Act while financial market laws and ordinances are still to be complied with:
- Token issuer
- Token generator
- Private keys custodian for third parties
- Physical validator (between token and tokenized assets)
- Protector (holding tokens in his own name for account of third parties)
- Exchange office operator (token exchange for fiat and tokens for tokens)
- Verifying authority (checking ability to conclude the deal and the preconditions to sell tokens)
- Price service provider
- Identity service provider (identifying the authorized person of public keys and making registry)
Under financial market laws the following activities may be subject to the following approvals and licenses:
- For STO most likely prospectus would need to be published.
- Most of the exchanges and tokenization platform would fall under payment institution and securities dealer license.
Besides of the regulatory framework Liechtenstein has the following competitive advantages:
- Liechtenstein is a part of European Economic Area and thus offers access to the European market, which is not the case with Switzerland.
- Serious jurisdiction, reliable for investors compared to Estonia, Cayman Islands and other offshores
- Liberal legislation and legal stability as in Switzerland but faster and more flexible thanks to the size of the country
- Getting an STO in a couple of months in a serious jurisdiction reliable for investors
- Liechtenstein is an international financial center with over around 295 billion assets under management
- Credit ratings S&P, Moody’s, Fitch AAA +
Major disadvantages are costs of approvals or licenses (including company set up, attorneys, minimum capital ect.) for blockchain projects are still high compared to Lithuania, Estonia etc.
Here we still must note that it not any sort of consultation and RLP Lawyers will not take any liability for the general overview information provided.