of the regulatory perimeter, via the process of
regulatory sandbox provides a safe space for
more competitive: to introduce governance
seeking a “no-action” letter from FINMA.
testing innovations that may need financial
and standards in the name of transaction
regulatory authorisation.
cost efficiency, which can provide legal
179
Only offers of securities tokens are to be in compliance with securities regulation.
The 3-fold token classification
clarity, or to allow (and wait for) bottom-up
Singapore also clarifies that only securities
approach allows the UK, like Switzerland
solutions to evolve. The former can create
tokens are caught within its regulatory
and Singapore, to delineate the regulatory
dissonance with other regulatory and legal
perimeter,
although other tokens must
perimeter, achieving a form of refrain from
institutions186 and costly for regulators and
comply with existing commercial and
over-regulating cryptoassets. The chief benefit
regulatees. Further, it is uncertain if the
regulatory laws applicable to the business
is that such implicit permission may be a
standardised solutions are indeed optimal
model, such as anti-money laundering laws.
way attracting cryptofinance developments
for the blockchain-based community.187 It
Although no formal “exemption” regimes
while preventing them from being stifled
can also be argued that the existing private
are articulated in Switzerland or Singapore,
by regulation. The UK, Switzerland, and
law institutions in the UK and Singapore,
“implicit permission” can be derived from
Singapore are highly popular jurisdictions
based on common law concepts of contract
the authorities’ clear delineation of the
for conducting token issuances.
It can
and property, provide a favourable backbone
regulatory perimeter and its inapplicability.
be argued that this is tantamount to a “race
for dispute resolution if any in the blockchain
This seems to achieve a balance between the
to the bottom” although the jurisdictions
space. Commentators have argued that
desire to embrace innovation and prevent
appear to defend their existing securities,
property rights in cryptoassets188 and that
existing regulation from unduly stifling such
investments and payment services laws.
contractual doctrines should work within
innovation, and providing an appearance of
However, it may also be argued that the self-
the reasonable expectations of transactors189
the strength of existing regulation and law.
regulatory approach reflects the purported
Commentators on Swiss law have also
These approaches are based on not expanding
lack of governance needs by blockchain-
provided similarly assuring opinions.190
the existing regulatory perimeter, and have
based businesses, as these businesses crucially
—————————————————
also influenced the UK’s approach.
rely on peer-to-peer exchange and do not
180
183
The Financial Conduct Authority (FCA)
create business-consumer relationships.
in the UK consulted on the regulatory
The automated protocols on the blockchain
perimeter for cryptoassets,181 and has adopted
provide for the functional and self-governing
The UK, Switz erland, and Singapore are highly popular jurisdictions for conducting token issuances.
the token classification first adopted by the
needs of the system’s participants, and such
—————————————————
Swiss authority, ie utility, securities and
businesses may be argued to be not in need
The self-regulatory approach may not
182
payment tokens. The FCA now clarifies
of external institutions of governance anyway.
be a “race to the bottom” as it may indeed
that only tokens that confer investment and/
However, as experiences with self-
be a continuing experimental but engaged
or governance rights would fall within the
regulating cryptocurrency blockchains
endeavour to understand the needs of the
scope of securities tokens, and that payment
have shown, all permissionless blockchains
blockchain-based community in relation
and utility token offerings do not have to
encounter situations where incomplete
to legal and regulatory institutions, and
comply with securities regulation. They
contracting gaps that were not envisaged by
what structures if any may provide the
would have to comply with payment services
184
the smart contract code need to be filled,
certainty needed for those businesses. This
regulation and other commercial or business
or that collective goods or commons need to
approach may also arguably be superior
regulations such as anti-money laundering,
be protected.185 Would it be more optimal for
to the exempt private market approach in
advertising and data management laws that
regulators to provide such collective standards
the United States which confine ICOs to
across the board. The FCA is also keen to
and protect commons, or should this be left
accredited investors and the institutional
emphasise that it provides consultation
further for self-regulation? For regulators,
investment market, shutting out retail
opportunities for innovation and the
it is uncertain which approach would be
participation. As blockchain-based businesses
14
Currents 24.2 2021
