Switzerland's regulator issued guidelines for initial coin offerings. The upshot? There isn't much it can do to govern the token rush flooding the alpine nation.

Swiss financial regulators said on Friday it will require some fundraisers by token, so-called initial coin offerings, to adhere to money-laundering laws. The move is the first sign of structure around coin-based fund-raising since the alpine nation emerged as a hub for cryptocurrencies, along with rival Asian financial centers Hong Kong and Singapore.

ICOs raised nearly $5 billion last year, much of it through Swiss entities, according to a recent study by consultant PWC and the Crypto Valley Association. The rush for funds has also raised dicey questions for Switzerland around preventing ill-gotten money from flowing in. A bitter dispute over Tezos, one such currency, is testing the limits of Swiss foundation law. 

On Friday, Bern-based regulator Finma said payment tokens, or those such as bitcoin, ether, or litecoin which aim to be used as currency, will be subject to the same money-laundering requirements that finance firms are. 

Swiss Tightrope

At the same time, Finma admitted its hands are somewhat tied until a working group launched last month finalizes recommendations to the Swiss government.

«At present, there is no ICO-specific regulation, nor is there relevant case law or consistent legal doctrine,» the regulator said. Instead, some ICOs  fall under securities oversight, for example, depending on their type.

The comments highlight that Switzerland, battered by several high-profile money-laundering scandals like Petrobras, Odebrecht, and 1MDB, has much at stake in cultivating «crypto nation» status. Finma said last year it has already shut down several crypto scams, and is monitoring several other, undisclosed projects.

Blockchain Rules

Finma will group ICOs as payment (required to adhere to money-laundering laws, but not treated as a security like a stock or bond), utility (to buy specific services, not treated as securities), or asset coins (partial ownership of a specific assets, treated as securities and also subject to other requirements such as publishing an investor prospectus. The regulator acknowledged that some coins may carry features of several categories, meaning it will be subject to more than one set of guidelines.

Finma head Mark Branson said he welcomes blockchain technology, but that projects pinned to the decentralized ledger «cannot simply circumvent the tried and tested regulatory framework.»

Balance vs Crackdown

Unlike counterparts in Singapore and elsewhere, Finma didn't issue any specific investor warnings on ICOs, saying merely that tokens can be volatile in price and that trades carried out on blockchain technology may not be legally binding.

«Our balanced approach to handling ICO projects and enquiries allows legitimate innovators to navigate the regulatory landscape and so launch their projects in a way consistent with our laws protecting investors and the integrity of the financial system,» Branson said.