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Blockchain & ICO

ICO jurisdictions (Israel and Switzerland)

by Administrator, on Oct 5
On Wednesday, 3rd October, InnMind has conducted a webinar about Switzerland and Israel as jurisdictions to make an ICO.
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 On Wednesday, 3rd October, InnMind has conducted a webinar about Switzerland and Israel as jurisdictions to make an ICO. In the first part of the webinar the speakers gave an overview of the jurisdictions.

PART 1

Switzerland was presented by the speaker from Walder Wyss.

Key features of SWITZERLAND as an ICO jurisdiction:

  • FINMA is Switzerland’s independent financial-markets regulator. FINMA guidelines do not aim to establish a uniform regulatory approach on ICOs. It is necessary to build a nice ICO project with the guidance of the FINMA and tax authorities.
  • In its guidelines, FINMA has defined 3 types of tokens: payment, asset (security) and utility tokens. To find out more about FINMA’s classification: https://www.finma.ch/en/news/2018/02/20180216-mm-ico-wegleitung/
  • It is difficult to open a bank account into the banks, which is crypto-friendly. What is happening with the banks now? Do you think that situation will change and in which direction?
  • Swiss bank associations published guidelines: the banks unleash the needs for more clarity on the blockchain issues. The environment is slowly becoming more and more favourable for blockchain companies.
  • There is a distinction between blockchain companies without an ICO and blockchain companies with ICO. The business model of  blockchain companies without an ICO is linked to blockchain technology, but they don’t use it for raising funds – so they are treated by the banks in the same way as other companies.
  • Blockchain companies with ICO should apply for relevant Swiss standards for KYC.  

Israel was presented by Aviya Arika, lawyer,  head of AviyaLaw.

Aviya is passionately focused on the crypto legal practice. This passion has led her to develop and manage the blockchain practice of a Fin-tech Tel Aviv based law firm, and then to move on and establish her own firm, focused solely on crypto, with a presence in Tel Aviv, Kiev and other strategic locations.

Key features of ISRAEL as an ICO jurisdiction:

There are around 1500 blockchain startups in Israel.

ICOs that are being conducted by Israel companies are not relying on any specific regulations.

✅ What has already been done in Israel?

  • Israel Security Authority “Interim report”. When we are talking about the categorization of the tokens – they are very similar to what FINMA made – payment, utility and security. And this report recommends not to overregulate and not to underregulate the industry.
  • There is a new Fintech Innovation Hub, which was established about two months ago.
  • Foreign law Reliance regime (for example, if an entrepreneur comes to the committee to say that he is complying with the Swiss law and asks them to rely on that, so he can comply with the law in Israel as well)
  • Act, which regulates crypto exchanges (Company should have a capital to protect the investors and the clients in case of insolvency)
  • Taxation: there is no special taxation regime for ICO or crypto startups yet.
  • Bank situation: there is no unified position now. Israeli banks are working very slowly to change the systems

✅ Are there banks in Israel that already offer custody for crypto?

No, there is no custody for crypto services right now.

✅ For ICOs There is no specific law, so does it mean you can or cannot do an ICO from Israel?

Yes, projects can do an ICO from Israel. It is not forbidden.

✅ If there is no specific taxation law, how are cryptos from an ICO taxed on a corporate level?

It is the same for ICO tax as for a corporate tax.


PART 2. Questions:

1.   Is residency a requirement in Israel or Switzerland to start a company and plan an ICO?

Aviya (Israel): No.

Walder Wyss (Switzerland): No, you should have just one member of the board that would be a Swiss resident, but then the shareholders - they don’t need to be Swiss residents.

2.   (For Switzerland) What is the length to get your token accepted by regulators?  

Walder Wyss: It depends on the complexity of your project. And its difficulty, as FINMA has to understand it: if it is very clear and simple – it would take about 6 months.

3.      Do you believe that at some point the technology of smart contracts can replace the legal support?

Aviya (Israel): No, I don’t believe. I don’t see smart contracts replacing lawyers. Smart contracts are not developed enough yet for this.  

Walder Wyss (Switzerland): No, I don’t think that smart contracts would replace the lawyers. But they can change a little bit the job of the lawyers: maybe they will be dropped to the blockchain, all the information will be saved there (will be written in the form of a code) .

4.      What do you think about ICO regulations: isn’t it contradictory to the whole philosophy of the blockchain?

Walder Wyss (Switzerland): The idea of ICO is to raise funds, to attract the investors, to found some real projects with real investors. And when you come to the investments with people investing in your project, it is completely legitimate to protect investors. Thus, regulation should not be seen as an obstacle for projects. It gives more credibility, more legitimacy for the project.

Aviya (Israel): I don’t believe that blockchain and cryptocurrency market could ever evolve and could ever live up its potential without regulations.

5.      What is the market of ICO now in |Israel and in Switzerland? Is it following the general trends of decrease of ICOs?

Aviya (Israel): There is still big work done by entrepreneurs, but the slowdown in the investors’ space.

Walder Wyss (Switzerland): There are less ICOs. The ICO requires a lot of small investors and a lot of marketing, and obviously, it is linked with the general trends of the cryptocurrency.

6.      What would be the steps to stabilize the market? What is still missing? What should be introduced?

Aviya (Israel): From the business perspective, there is still some regulation missing. In particular, monetary logic.  

Walder Wyss (Switzerland): The first step – to make this technology less unknown, to make it acceptance by the public.

7.      Is KYC/AML regulation applicable for the capital of the company that is in crypto?

Walder Wyss (Switzerland): The rules will be at least the same as for fiat: no differences in regulatory perspective between cryptocurrencies and fiat.

8.      Let’s take an ICO that will be done in 3 rounds as an example. Can the token be accepted as a utility token at first round and later on as a payment token?

Walder Wyss (Switzerland): As long as you don’t trick FINMA it is fine. You would need to explain to FINMA that your token will change. Avoid making change without telling them or record it as a utility token and then asking them to change it to something else.

9.      What is the ICO application process? Both in Israel and Swiss?

Walder Wyss (Switzerland): Firstly, you need to describe your project precisely, to answer all the questions, then you go through checkings by FINMA, tax administrations, Registry of Commerce to open your new company. Only when you have approvals, you start the process of raising funds.   

Aviya (Israel): The first step would be to go and see the lawyer to understand how your token is characterized and whether it would be more likely to be considered a security, utility or payment token.

10.  How far are investors of ICOs protected by jurisdictions?

Aviya (Israel): For security token -  In Israel investors protection regimes are very well developed. But for other types of tokens, people have consumer protection laws and contract laws.

11.  How the entrepreneurs are protected by the current regulations?

Walder Wyss (Switzerland): The main risk is an economic risk about the volatility of the token. From the legal point of view, they are well protected.


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