In other countries, politicians express concern about the cryptocurrency craze, citing worries about security, regulation, volatility and a speculative bubble. Not in Switzerland. The affluent Alpine country wanted “to be the crypto-nation”, Johann Schneider-Ammann, economics minister, told journalists as he arrived for a private crypto finance conference in St Moritz last week. Of the 10 biggest proposed initial coin offerings — by which start-ups raise funds by selling tokens — four have used Switzerland as a base, according to PwC. The burgeoning ICO industry is burnishing Switzerland’s business friendly reputation and sometimes buccaneering spirit — a reputation spoilt by the past decade’s scandals over the help its traditional private banks gave to wealthy clients in evading tax. But it has created a dilemma for Swiss politicians and regulators: just how far should they go in encouraging a digital “wild west”? As Mr Schneider-Ammann spoke in St Moritz, the government in Bern announced an ICO working group to consider possible actions by regulators and lawmakers. Separately, the Finma financial regulator is expected soon to give an update on how it is policing ICOs. “We think there is huge potential — but the market is not as disciplined as we want,” says Jörg Gasser, state secretary at the Swiss finance ministry. “We want it [the ICO market] to prosper but without compromising standards or the integrity of our financial markets.” “They want Switzerland to be the place to make it happen — but they don’t want to be seen as the ‘wild west’. It is Swiss pragmatism,” says Martin Eckert, partner at MME, a Swiss law firm. Digital pioneers say Switzerland emerged as an ICO hub because it has a cluster of rich investors and technology specialists. The small canton of Zug, near Zurich, has unofficially become “Crypto Valley”. The Crypto Valley industry association says it receives five to ten inquiries a day from start-ups around the world interested in how to do a Swiss ICO. ICOs build on the Blockchain distributed ledger technology behind bitcoin. As well as fuelling the fantasies of speculative investors, they threaten to disrupt the venture capital industry by slashing the cost of fundraising — and opening up the possibility of investing in start-ups to anyone with a smartphone. Zug, near Zurich, has unofficially been dubbed 'Crypto Valley' Some practitioners dislike the term ICOs because it suggests they are just get-rich-quick schemes which seek to avoid cumbersome investor protection regulations. Proponents argue that many “tokens” offer access to services or property rights and are not meant as speculative investments. An alternative is to call them “token generating events”. Other EU countries and the US have warned of the dangers of ICOs — and China and Korea have banned them. But another reason for Switzerland’s crypto success, argue proponents, has been its openness to business innovation. Mr Eckert at MME says: “Swiss regulators are among the few that really have a deep understanding of the technology and how it works.” Nevertheless, Finma last September struck a note of caution, warning it was investigating “a number” of ICO cases for possible breaches of regulations, including on preventing money laundering and the financing of terrorism. Crypto traffic: regulators’ different views on ICOs RED LIGHT/BANS China, South Korea, Vietnam, Russia ADVISING CAUTION US, UK, European Union, Hong Kong, Canada, Australia, Singapore FAVOURABLE Switzerland, Gibraltar, Isle of Man, Cayman Islands, Mauritius Kari Larsen, attorney at Reed Smith in New York, says Switzerland’s approach was pragmatic but also “may be to a certain extent opportunistic”. It could face competition from places such as Gibraltar — leading to damaging competition to attract ICOs. “Just being welcoming, without also looking where consumer and market protection may be appropriate, would be short sighted,” Ms Larsen says. Digital purists argue no action is needed by politicians or regulators. The government “should be incredibly welcoming. It is a huge opportunity for Switzerland,” says Richard Olsen, founder and chief executive of Lykke, a Swiss company building a Blockchain based financial exchange. Share this graphic Mr Olsen argues technology will allow ICOs to become self-policing — just as users of the Airbnb property rental site steer clear of anyone with poor reviews. “It will become an ultra transparent world if people have to pay more to hide . . . It is a huge opportunity to clean up the world.” Switzerland is unlikely to be so liberal. A big worry in Bern is of cyber currencies being used for illicit activities, especially given that Switzerland dominates the market for the cross-border management of private wealth. “They don’t want to fall into the same trap as banks over the past 30 to 40 years — they are extremely sensitive to things like anti-money laundering rules and ‘know your customer’,” says Oliver Bussmann, president of the Crypto Valley association. Recommended From Davos: Blockchain can no longer be ignored ICO regulation inconsistent as bubble fears grow. Lex on cryptocurrencies: dancing on the ceiling Against that, industry practitioners say Swiss ICOs are, in practice, obliged to follow strict anti-money laundering procedures anyway: if they do not, traditional banks will turn away their funds. Bern could also toughen up how different ICOs are categorised, and when they fall under strict financial market or bank rules. It could also strengthen consumer protection. Significantly tougher rules could kill the Swiss ICO business and drive it elsewhere. But Bern’s stated objective is to ensure Switzerland keeps a competitive edge in blockchain technologies. By removing uncertainty about its legal framework, it hopes to encourage ICOs. Mr Bussmann says: “I see a desire by the government to continue to be a leading [ICO] hub, and provide the right balance between innovation, attracting business — and having a stable regulatory environment.”
From FT 25-1-2018 - Ralph Atkins in Zurich