Why tokenize your company?

Swiss share tokenization legal framework

Intro

Securities

There are defined as ‘standardized certificated or uncertificated securities, derivatives and intermediated securities that are suitable for mass trading.’ 

What about the Security Token Offerings?​

STOs

Security Token Offerings (“STOs”) are a means for companies to emit securities. Profits could be distributed to the token holders directly, which gain in efficiency due to a potential reduction of the number of intermediaries and lower transaction costs.

Knowhow

The ability to issue programmable and traceable securities is an interesting prospect for companies. Investors need to identify themselves before they are allowed to buy the token and the transaction history of the token provides a simple way to identify beneficial owners. This offers benefits as regards to the owner’s legal rights, the prevention of illegitimate voting and much more.

ICOs vs STOs

The difference between ICOs and STOs is that in case of ICOs, only a token is being sold in terms of a “virtual asset”, which is only determined by supply and demand. ICO tokens did not entitle investors to receive profits and are much easier to conduct from a regulatory point of view.

Legal

DLT Authorization Category

In June 2021, the Federal Council brought the Swiss DLT Bill fully into force as of 1 August 2021. Namely, a new authorization category for DLT trading systems has been established in financial market infrastructure law, thus creating a flexible legal framework for new forms of financial market infrastructure.

Key Advantages of STOs in Switzerland

Lower cost

By eliminating numerous intermediaries and processes, the administrative burden and cost of each step is significantly lower, thus resulting in cheaper access to capital.

Easy and swift transferability

DLT-based settlement drastically increases transaction speed so that tokens and shares can be transferred within a minute – without paperwork and even digital/written signatures.

Full automation

Automated processes, such as fully automated execution of corporate actions (e.g. dividends or interest payments) or approval processes from existing investors.

Global investor reach

Digitized shares can be easily transferred globally 24/7 and location-independent with a simple investor onboarding, allowing investor outreach beyond established networks.

Enforceable rights

Token holders act as shareholders with enforceable rights, incl. dividend and voting rights.

Opening of market access and opportunities

Lower entry barriers to capital markets and access to new investment opportunities with options for smaller ticket size as well as portfolio diversification (incl. previously hardly investable assets).

Fast incorporation

The whole procedure is accelerated by digitization of the processes as well as lighter regulatory requirements (FINMA no-action letter or tax ruling not required).

Optimized corporate housekeeping

Digital corporate housekeeping including real-time token holder/ shareholder registry for optimizing the investor communication.

Security tokens under Swiss financial market law

Regulatory classification

Instead of “security token”, the Swiss regulator FINMA uses the term “asset token”. Such tokens represent assets like debt or equity claims on the issuer, and promise, e.g. a share in future company earnings or future capital flows. In terms of their economic function, they are thus analogous to equities, bonds or derivatives. Tokens which enable physical assets to be traded on the DLT/Blockchain also fall under this category. A token that qualifies as an asset token is classified as a security under Swiss financial law.

Application of prospectus requirements

The Swiss Financial Services Act (FinSA) has introduced a general duty to publish a prospectus for securities. However, there are numerous exemption provisions, e.g. for offerings to (i) professional investors, (ii) less than 500 investors, (iii) investors that invest more than CHF 100’000, or (iv) which are limited to total amount of CHF 8 Mio calculated over 12 months.

KYC/AML requirements

According to FINMA, issuers of asset tokens do generally not fall under the Swiss AML regulation.

Roadmap

Evolution of the regulatory landscape for tokenization

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