1.The Role of the Regulators
On 29 September 2017, the FINMA published its guidance regarding the regulatory treatment of initial coin offerings (ICOs) in Switzerland. A number of regulators, chief among them the US SEC or Singapore’s MAS, have previously taken positions and issued regulatory documentation with regard to ICOs. Such regulatory action is mainly focused on the legal classification of the activity, i.e. whether securities laws / capital market regulations and/or banking regulations should be applicable to ICOs. In its regulatory guidance FINMA has further clarified that also Anti-Money Laundering laws (AML) may or may not be applicable to ICOs and related services for cryptocurrencies. As this is an area where much is happening currently, FINMA has implemented a Fintech Desk in order to assist both Fintech entrepreneurs and potential investors.
2. Anti-Money Laundering Rules
The Swiss Federal Act on Currency and Payment Instruments defines as the one and only currency the Swiss Franc, which is divided into 100 cents. Clearly, cryptocurrencies do not fall under such definition which raised the question how ICO’s or transaction in cryptocurrencies in general could be subject to AML regulations.
The answer can be found in the scope of the Anti-Money Laundering Act (AMLA). The AMLA is applicable for either
- Financial Intermediaries, or
- Dealers of commercial goods accepting cash
Financial Intermediaries are naturally defined as banks, fund managers, securities dealers and the like. However, there is also a generic and broad clause to cover persons who on a professional basis accept or hold on deposit assets belonging to others or who assist in the investment or transfer of such assets; they include in particular persons who:
- carry out credit transactions (in particular in relation to consumer loans or mortgages, factoring, commercial financing or financial leasing);
- provide services related to payment transactions, in particular by carrying out electronic transfers on behalf of other persons, or who issue or manage means of payment such as credit cards and travellers’ cheques;
- trade for their own account or for the account of others in banknotes and coins, money market instruments, foreign exchange, precious metals, commodities and securities (stocks and shares and value rights) as well as their derivatives;
- manage assets;
- make investments as investment advisers;
- hold securities on deposit or manage securities.
If and when the funding or investment into cryptocurrency involves payment transactions in Fiat money and the provider qualifies as a financial intermediary as defined above, AMLA will apply and relevant duties – in particular KYC and Due Diligence duties – will have to be performed.
AMLA is further applicable for commercial dealers of goods who accept cash amounts in excess of CHF 100’000 in their course of business. If they do, then the beneficial owner must be identified (mainly by way of a Form A). Although not clarified yet, a similar treatment could be argued if and when such transaction would take place via similar values in cryptocurrencies.