“In Switzerland the laws around cryptocurrency are very well established and it’s an activity that is highly regulated. You know what you can do with cryptocurrency, and what you can’t.”

Why legal certitude, rigorous financial process and a commitment to security are important to us, and should be important to everyone engaged in the cryptocurrency community.

The path to a successful ICO has plenty of twists and turns. At one end there’s that flash of creative inspiration for an amazingly transformative product, or service, enabled by the creation of a new token. At the other, a rigorous financial process to ensure the ICO itself is sound, competent and beyond legal question, which as a token issuer is a sacrosanct responsibility, and duty to the community surrounding a project such as ours.

In many of our blogs we’ve talked about the ideas behind Pigzbe and its value in the expanding environment of Blockchain and cryptocurrency, but we’ve done little to show the devotion to compliance and regulation required to breath life into a transformative fintech project such as ours.

So as our own ICO approaches, we thought we’d share the details of how we’ve gone about creating a compliant ICO. We’ve brought particular attention to some of the challenges and intricacies involved in some of the less discussed aspects of the trade, and attempt to unpick some of the financial and legal science behind them.

To do this, we drafted in the help of Crypto-lawyer Lars Schlichting, partner at Swiss law firm Kellerhals Carrard. Lars and his team have followed Pigzbe SA as legal advisors since the company’s inception, and have to date managed more than 11 ICOs that have gone to raise in excess of $100 million, creating billions of dollars in assets. In addition to his work at Kellerhals Carrard, Lars spent five years at the Swiss Financial Market Supervisory Authority (FINMA), and 10 years at KPMG’s legal team in Lugano, and today Lars is also group CEO of Poseidon of the Poseidon group.

Treat the concept of utility tokens correctly

First up is the distinction between a security token and a utility token. In our case, Pigzbe’s Wollo will be a utility token because purchasers will be using it to access a service — a utility. Pigzbe’s case is clear-cut, but for many companies entering the market, finding that clarity of function for their token isn’t always easy. The token needs a clear purpose, and can sometimes even be a payment token, but most importantly, it needs to unequivocally, and indisputably not function as a security, or as defined by FINMA’s most recent round of ICO guidelines published on the 16th of February 2018, an “asset token”.

“For a utility token, the most important thing is to have a service ready immediately after the ICO,” says Lars Schlichting “If people are purchasing your token they’re doing it because they want to use it with the service you’re going to provide.”

FINMA states that “utility tokens will not be treated as securities if their sole purpose is to confer digital access rights to an application or service, and if the utility token can actually be used in this way at the point of issue. In these cases, the underlying function is to grant access rights, and the connection with capital markets, which is a typical feature of securities, is missing. If a utility token additionally or only has an investment purpose at the point of issue, FINMA will treat such tokens as securities (i.e. in the same way as asset tokens).”

In our case, for example, we’ve ensured that at ICO launch we will be providing a fully functioning wallet app live on the Stellar Network. Through it families can form microfinancing networks, sending and receiving Wollo. Upon this we will build an immersive game for children in which Wollo replaces physical coins traditionally stored in physical piggy banks, while teaching important financial education concepts.

Additionally, to promote openness, Kellarhalls Carrard’s fintech team helped us draft and present a letter to FINMA regarding the qualification of the Wollo Token. For Pigzbe this represents a first important step in the development of a transparent relationship with local financial authorities, and in turn with our community.

Choose a jurisdiction, and why Switzerland is a safe home for ICOs

While no clear geographical hub exists for blockchain and crypto businesses, it’s becoming increasingly common for cryptocurrency-based projects to start their life in Switzerland, as did Pigzbe SA. The reason is simple. Regulations, and compliance.

“In Switzerland the laws around cryptocurrency are very well established, and ICOs are a highly regulated activity. Clear-cut regulations mean that companies have legal certitude. You know what you can do with cryptocurrency, and what you can not,” says Lars.

The practicalities of launching a new product or service — as any startup will know — can be tough, and doubly so with ICOs, where aside from general operational challenges, you also have intricate legal requirements. Building a start-up is at times a little bit like building a car while driving it. Plans are in a constant state of evolution as new information is obtained and progress is achieved.

During Pigzbe SA’s planning phase, we decided to first domicile our company with a fiduciary, giving Pigzbe time to carefully plan for personnel, premises, and post ICO growth. Carrying out this ‘company incubator’ work within a Swiss-based fiduciary has helped Pigzbe SA to develop the product and prepare for the ICO — in a properly regulated financial environment — before recruiting the wider workforce that will take the product around the world.

For the record and full openness, Pigzbe was incorporated in March 2018 and has an office at Ebco Fiduciaria SA, a consultancy company that we’ve collaborated with since January 2018. It’s based in Ticino, an area steadily becoming a centre for cryptocurrency companies within Switzerland. Once ready to launch, Pigzbe will rent proper premises, and begin hiring locally for logistics, commercial and accounting operations, while the London team will continue to focus on R&D activities.

Dig deep to find the right team

So what comprises a good team? As a potential ICO participant, what are the background checks you could make? As someone considering their own ICO, what are the key people components you can’t go to market without?

“You need to see competence, strength and experience in three areas,” affirms Lars. “Management, development and marketing.”

A good business team is essential because the people conducting the enterprise have to know how to execute the vision, and how to execute it well. From good designers and developers, to knowledgeable marketers, sales teams, and in our case, business administrators from the field of fintech, Blockchain and crypto. Overlook one of these fields, and your project will suffer.

“Fortunately, it isn’t difficult to go on LinkedIn and see for yourself what the profiles of each team member are,” says Lars. “It’s a key piece of research that can tell you a lot about a project.”

In our case, our team of manager, developer and advisors has come together from places like PayPal, Visa, Google, Apple, Kano and Primo. You can take a longer look at the Pigzbe team here.

The importance of AML and KYC

Two sets of initials regularly crop up in the fiscal safeguarding process around cryptocurrency: AML and KYC — Anti Money Laundering and Know Your Customer. Both are key tools in preventing illegal financial actions, and rightly are becoming an increasing important part of ICOs.

“Cryptocurrency is a distributed ledger so whatever you do is recorded in this ledger for ever,” points out Lars Schlichting. Blockchain, is a system that makes it possible to trace every last detail of a transaction, right back to the person who initiated it. Because of this degree of clarity and exposure, cryptocurrency is not the easiest route for money launderers to take. Nonetheless, AML is still of the utmost importance and Pigzbe prides itself on conducting the appropriate KYC and AML checks.

“There are still a few cryptocurrencies that are completely anonymous,” warns Lars, “but ordinary crypto, like Bitcoin, Ethereum or Wollo (Pigzbe’s own token) are completely traceable. Every Wollo purchased at ICO will forever be recorded.”

More relevant to the majority of us working in cryptocurrencies — and those considering purchasing them for the first time — is KYC. This is the process that verifies each buyer’s identity and residency, and adds a valuable layer of security and confidence to transactions.

There are light versions available to token issuers looking to execute legally compliant ICOs, but the best security is achieved by implementing banking grade KYC within the ICO process, which is what Pigzbe SA will require its buyers to complete.

A full KYC asks for…

A picture of your ID card or passport of a quality good enough to enable a check to see if either has been faked.

A picture of a statement or bill that is no older than 3 months to prove your address (typically a utility bill).

A ‘live selfie’. (This means a picture of yourself taken in a way that allows the system to confirm you are a genuine human being, not an image held up to a camera.)

A declaration confirming that you are the ultimate beneficial owner of the assets used.

A transaction to zero.

The final step is to prove that you hold the keys to the wallet you’re going to use for the tokens you’ve purchased. You have to perform an authenticating transaction in which you send nothing to the wallet (hence ‘transaction to zero’), but which allows your wallet to be confirmed or ‘whitelisted’.

KYC can be a hurdle, admits Lars, “but when you’ve done it, you know you’re on the right side of the process. You’re doing it correctly. You’re compliant.”

Pigzbe takes its KYC and AML processes extremely seriously, for both the sake of the project, and the sake of our participants. The KYC process described above can be done via our ICO platform provider, Eidoo. (And check out our Token Sale and KYC Guide with all the info on how to whitelist.)

Terms and conditions in the spotlight

It’s not unusual in an ICO for your T&Cs to come under close scrutiny — and rightly so. Be sure that these are watertight. In Pigzbe’s case, with the help of our Swiss legal advisors we’ve prepared a set of full terms and conditions of sale, which will be made available to participants at ICO open, and will be there for everyone to read. Those interested in buying Wollo Tokens will be directed to them, and have the chance to scrutinise them before purchase.

Another important aspect of an ICOs terms and conditions, is the arbitration process offered to ICO participants. Arbitration is a far more accessible, cost effective, and consumer sided mechanism for settling disputes. Court proceedings, on the other hand, can be hugely drawn out and costly, which is why arbitration is the more sensible alternative, and one that Pigzbe has highlighted in our Whitepaper.

The best way of working with banks

A prerequisite of sound banking activity is that risk is managed sensibly. Cryptocurrency is still so new that few banks have built sufficient perspective to allow them to gauge that risk comfortably. So what are the guidelines an ICO should follow to forge a solid banking relationship?

“Accept that there are going to be a lot of documents, a lot of certificates and a lot of information sharing involved,” says Lars Schlichting. Embrace it, work with it. “Have a good structure to the business and a good structure to the ICO.” Both will make it easier to deal effectively and efficiently with regulators and tax authorities. “Opening a bank account in Switzerland for an ICO is a mark of approval.” The bank will have carried out extremely stringent compliance and due diligence checks for this to go ahead. “It’s a sign you really are unlikely to be a scam.” “Understand that this will take time.” It is a very deliberate process with a high degree of diligence. High street banks can open a personal account for you almost immediately. This may take a month. Or more.

If you can work your way through this process, get all the documents approved, and open your account (as has been the case for Pigzbe working with Zarattini bank in Chiasso), you will have further demonstrated to your community that your ICO’s structure is sound.

In conclusion, and why the above matters to Pigzbe

So why do we see all this as important? Adam Amos, Pigzbe Founder and Chief Operating Officer, argues that public perception of trust and the desire to protect an ICO’s community is of the utmost importance. “If we want to be successful, we have to provide our community with the ability to trust us and provide security to anyone participating in our ICO or connected to our product, service or brand. It’s just the right thing to do.”

“At Pigzbe we’re looking to bring as much transparency and openness to our process as we can. Unfortunately general market perception over the past few years is that ICOs are run by people or companies that are not associated with any rules — the Wild West if you like. They weren’t fulfilling the promises they gave either in their White Papers or in the tokens they were distributing.”

That reputation hasn’t been helped by the fickleness exhibited in different regions, such as China closing down anything to do with crypto, crypto exchanges or ICOs and the US not having proper (or any) regulations in place. By classing everything as a security, this opens ICO participants up to jeopardy for breaking taxation rules.

“So it’s very meaningful for us to make sure everyone understands we are doing everything we can to protect them, build a strong community and develop something for the long term.

“Using Switzerland and having an understanding of a regulatory framework to work against was the most secure way of defining our ICO and the utility of our token. But I think what we are also trying to do is provide an exemplar ICO which can benefit the rest of the crypto community. We’re marrying the traditional processes and compliance structures of the financial services world, with cutting edge Fintech and legal practices. It’s important to us that we communicate this to everyone — from consumer to government.”