Swiss ICO market ‘is not a Wild West’

Is it anything goes like in America's pioneering days? The blockchain/ICO regulator wants to keep the industry's feet on the ground. akg-images

A senior Swiss government official has dismissed fears that a new method of funding for crypto start-ups has mushroomed out of control. Last year, such firms raked in an estimated CHF850 million ($890 million) in Switzerland using a novel form of capital raising known as “initial coin offering” (ICO).

This content was published on March 28, 2018 minutes

Jörg GasserExternal link, head of the State Secretariat for International FinanceExternal link (SIF), denies the ICO industry has descended into a free-for-all and is convinced that ongoing regulatory tweaks can protect the reputation of the Swiss financial industry.

Gasser chairs the Swiss government’s Blockchain/ICO working groupExternal link that brings together the Swiss Financial Market Supervisory Authority (FINMA), the Federal Office of Justice and the private sector to scrutinise the ICO landscape. It will report to the government by the end of the year.

After stints at the International Committee of the Red Cross and roles in the Swiss Justice and Finance ministries and the Migration Office, Gasser took up his post as head of SIF in July 2016. Keystone Some observers refer to the ICO market in Switzerland as a ‘Wild West’. What are the risks to consumers and Switzerland’s reputation that still need to be addressed?

J.G: A ‘Wild West’? Not really. Firstly, FINMA issued guidance on how to apply existing market legislation, in particular on preventing money laundering and the financing of terrorism. FINMA is also strictly enforcing any fraudulent ICO projects that breach existing laws and regulations.

Secondly, our governmental working group Blockchain/ICO is looking at the legal framework to identify any potential need for action. Since our regulation is principle-based, however, already today many of our laws and rules are applicable on crypto assets and ICOs. This is true in particular with regard to anti-money laundering and counter terrorism requirements. Swiss Economics Minister Johann Schneider-Ammann recently called for Switzerland to become known as a ‘Crypto Nation’. Is this feasible and what would this look like in 10 years’ time? 

J.G.: It is a nice catchphrase, but the term ‘crypto’ is rather reductive and can be misleading. To speak of a ‘Blockchain nation’ or a ‘Fintech nation’ would be even more accurate. 

What it will look like in Switzerland – or in the world for that matter – in 10 years’ time is anybody’s guess. It depends on technological, economic and legal evolutions. However, if we put the right framework conditions into place, we will be able in the long term to attract innovative companies, which will create jobs and pay taxes. 

Our goal is to ensure that Switzerland keeps a competitive edge in blockchain technologies in general without compromising the integrity of the Swiss financial sector. Disruptor start-ups are promising a complete change in some areas of economic and financial system. How much disruption will this potentially bring to Switzerland?

J.G: New technologies will always find their way into the financial system and disrupt existing market structures. This has always been the case and cannot be prevented by either incumbents or by regulations. 

It is nevertheless a fact that these new technologies are a challenge for traditional players. There is no question that they need to embrace these new technologies to remain competitive. But I am convinced that in the foreseeable future fintech companies will exist next to traditional financial companies. Switzerland is known as a conservative country where things move slowly. Is this really the right place to be at the cutting edge of the blockchain revolution?

J.G.: One should remember that Switzerland always ranks as number one globally as far as innovation is concerned. Our country has always been open to business innovation. To add to that, Switzerland offers a stable political system, a liberal economic environment, a highly qualified workforce and a competitive tax system. 

Our regulations are principle-based and technology neutral. All these factors explain why Switzerland provides the right innovation-friendly ecosystem for fintech companies. It is said that cryptocurrencies will breathe new competitive vigour into Switzerland’s financial system, replacing the advantage that banking secrecy used to bring. What is your opinion on this view?

J.G: First of all, the Swiss financial sector remains very competitive. We are still number one in the world in cross-border private wealth management. Having said that, it is a fact that blockchain technology, which underlies most cryptocurrencies, leads to structural changes and disruption. 

But digital innovation can also make the financial system more efficient. As a small open economy, Switzerland can only be successful if it innovates constantly. And that is where our key strengths such as political security, legal certainty and high-quality services can help us to successfully address those challenges. 

What are ICOs?

Initial Coin Offerings (ICOs) - also known as Token Gathering Events (TGEs) – are a relatively new method of raising start-up capital for companies. Start-ups give out digital tokens in exchange for ‘contributions’ (usually in the form of cryptocurrencies such as bitcoin) to fund their projects. Rather than award company shares or dividends, these tokens in many cases simply allow people to use the new technology – which is often not yet built.

ICOs took off in 2017, raising an estimated $4 billion globally for blockchain start-ups. This rapid rate of growth has caused regulators in many countries to sit up and take notice. ICOs raise three main areas of potential concern: that the crowdfunding system may in some cases be used to launder illicit assets, dodge financial regulations such as securities trading rules or rip off unwary consumers through scams and fraud.

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