Compliance

ICO Regulation – todays biggest Challenges for Blockchain Companies

Almost three quarter of a year passed by since FINMA published its guidelines in Switzerland concerning ICO and token classification. Time for a closer look what happened in the meantime and what regulatory challenges ICOs and other blockchain companies are facing.

Performing a successful ICO is definitely not a walk in a park. Defining a sustainable strategy, writing a comprehensive white paper and finding investors are just some of the challenges. To make matters even more complex, various regulatory requirements shall be fulfilled – under the constant threat of being wind up by FINMA in case of non-compliance.

These five major regulatory challenges may cause a headache:

1.Token classification

In absence of clear regulatory specifications, the classification of token is tricky. Especially in case of a hybrid token or a token changing the functionality during its life-cycle. Anyhow, FINMA is the only instance that can undertake a binding classification. Therefore, from a risk management perspective, FINMA shall be approached and asked for clarification – against payment and with a time budget of about three months.

2.Compliance requirements

A comprehensive Compliance set-up is mandatory if a company is considered as a financial intermediary. This includes a self-regulatory organisation (SRO) membership as well as the maintenance of a competence center for combating money laundering – either inhouse or via an external partner. The recently published SwissBanking guidance goes further and requests such a set-up for all blockchain companies. This strict interpretation feels like an unnecessary extra mile but comes along with a benefit and leads us to the next challenge.

3. Finding a bank account

A topic that keeps us busy for way too long. Finding a Swiss bank account is still like running the gauntlet. By following the strict rules of the SwissBanking guidance, banks shall be conciliated in their concerns and risk aversion. A well-known bank servicing blockchain companies went even further and asks for a due diligence about the ICO itself. A serious and compliant set-up as well as a long-term orientation shall be demonstrated and, the most important, the Head Compliance shall be convinced. That leads us to issue number four.

4.Reputation

After fake tokens were sold to a broader audience, fraud cases were revealed and a high number of ICOs were wind-up by FINMA because of non-compliance, the blockchain industry lost its innocence. It feels highly unfair indeed to be put under the same umbrella as those crooks. Nevertheless, blockchain companies are forced to proof their credibility. A proper Compliance set-up supported by an external specialist and a due diligence report about the company itself are helpful tools to get access to banking services, investors and other stake holders.

5.Regulatory costs

Meeting these regulatory challenges is not for free. A fully financed share company and a seed financing reaching at least 1 m. Swiss francs are inevitable shall a serious blockchain company make it to an ICO.

It is not required to work with the most famous and expensive law firm in town but the support of an expert in regulatory and, in particular, in compliance matters is not a luxury. The positive side is, that the delegation of compliance tasks allows companies to focus on doing what the like and what they are best in.

5.Regulatory costs

Meeting these regulatory challenges is not for free. A fully financed share company and a seed financing reaching at least 1 m. Swiss francs are inevitable shall a serious blockchain company make it to an ICO.

It is not required to work with the most famous and expensive law firm in town but the support of an expert in regulatory and, in particular, in compliance matters is not a luxury. The positive side is, that the delegation of compliance tasks allows companies to focus on doing what the like and what they are best in.

Until further clarifying rules are published, we are stucked with the current setting. But even if there would be a more convenient regulation, blockchain companies will never be released from the duty to present their business in a serious way as well as set-up a compliant and long-term oriented structure.

The idea behind a company is just about 10% of the success, the rest is its execution.

 

Jürg Baltensperger, Managing Director of JayBee

JayBee focus on regulatory consulting with a focus on compliance & risk management for blockchain companies.