Fintech License: Start 1 January 2019

Blockchain, Fintech, Financial market law

I. Strengthening Digitalisation and Innovation in the Financial Sector with the help of the FinTech Licence as of 1 January 2019

1. Overview

The Swiss financial sector is in a state of upheaval due to increasing digitalisation and the emergence of innovative and often technology related companies. In order to keep up with the rapid development in the financial industry, the Swiss legislator has implemented three measures within two years, including a FinTech licence that was introduced as of 1 January 2019. The FinTech licence aims to lower the barriers to market entry for FinTech companies, but also intends to increase legal certainty in the entire industry. The quality of the Swiss financial centre and its competitiveness are to be strengthened and the growth of the economy as a whole shall be supported.

Of the three measures which were adopted, –(i) the extension of the holding period for settlement accounts to 60 days and (ii) a licence-free innovation room (sandbox) for public deposits of up to one million francs entered into force on 1 August 2017 by means of amending the Banking Ordinance.

As of 1 January 2019, the third measure, the mentioned "FinTech licence" - a new licence category introduced in the Banking Act - has entered into force. With the new FinTech licence, Switzerland intends to strengthen the attractiveness of the Swiss financial centre as a business location and to keep up with other countries that already have similar forms of licence types available.

For companies that intend to accept public deposits of up to CHF 100 million on a commercial basis and do plan to engage in any lending business, to perform any reinvestment activities regarding the deposits, and to engage in any maturity transformation (i.e. refrain from interest related activities), the FinTech licence might be an interesting vehicle that is worth being further analysed.

On 10 December 2018, FINMA also specified its anti-money laundering requirements and granted various organisational simplifications to small institutions, i.e. banks with a relatively low risk profile and a maximum gross income of CHF 1.5 million.

2. FinTech Modell

The Swiss legislator has recognized that new digital business models require an adapted regulatory framework. However, individual framework conditions that prove to be appropriate for maintaining the stability of the financial system must be defined. As a consequence, a certain reconceptualization of the financial market regulations is indicated. FINMA takes a fundamentally neutral stance towards new business models and technologies and considers innovation as an important factor for the competitiveness of the Swiss financial centre.

In particular, FinTech related companies came into conflict with the Banking Act, as the acceptance of deposits from the public requires a banking licence. Since the Banking Act places high demands on the granting of licences, this is a considerable barrier to market entry for FinTech companies. The Swiss FinTech model creates a level playing field for all market participants, whether established financial service providers or start-up companies.

Switzerland's FinTech model is based on three complementary elements:

  • An extended period of 60 days for holding funds on settlement accounts (see Art. 5 para. 3 Banking Ordinance). In particular, this could be relevant for providers of crowdfunding services.
  • A so-called "sandbox" innovation room, in which companies can accept an unlimited number of public deposits (liabilities to customers) up to a total value of CHF 1 million (see Art. 6 para 2 and 3 Banking Ordinance). However, they may not engage in interest margin business and inform depositors that they are not under the supervision of FINMA. This new regulation also allows funds to be received for private purposes (i.e. crowdfunding).
  • FinTech licence, for companies that limit themselves to the deposit-taking business (acceptance of deposits from the public) and do not conduct any lending business with maturity transformation (see Art. 1b Banking Act). The conditions to be fulfilled for obtaining a FinTech licence are lower than for traditional banks (more on this under Title 3.):
    • deposits may not exceed a value of CHF 100 million;
    • the deposits must not be remunerated or invested;
    • the minimum capital of the undertakings must always be three per cent of the total amount of deposits held, but not less than CHF 300,000; and
    • the "persons pursuant to Art. 1b Banking Act" are subject to supervision by FINMA and must have certain requirements audited by an auditing company.

The trigger for the introduction of the new FinTech licence are the strict and for many FinTech business models disproportionate requirements which the traditional banking licence stipulate. Most FinTech companies do not engage in interest differential business, namely for which the protection of a bank license is intended. This regulation deterred many FinTech companies from setting up a business in Switzerland. Therefore, with the FinTech licence, the Swiss legislator decided to formulate proportionate and simplified licencing requirements for such companies and activities.

3. Comparison of requirements for bank authorisation vs. FinTech authorisation

On 3 December 2018, FINMA published the guidelines for FinTech licence applications pursuant to Art. 1b of the Banking Act. The purpose of these guidelines is to facilitate the process of preparing a FinTech licence application.

The table below compares the guidelines for traditional banking licence applications dated 12 August 2012 with the recently published FinTech licence:

For the english version click here. (JPG, 523 Kb)

4. Conclusion

As shown above, the volume of documents to be submitted for the application for a FinTech licence is still considerable. However, holders of a FinTech licence enjoy lower financial requirements, such as a reduced minimum required capital of always 3% of the public capital contributions, but at least over CHF 300,000. Furthermore, FinTech licensees do not have to comply with any provisions of the Capital Adequacy and Liquidity Ordinance, as the public capital contributions are limited to CHF 100 million and may neither be invested nor subject to interest. By comparison, a traditional bank must meet strict liquidation and capital adequacy requirements (CHF 10 million). Finally, the accounts of FinTech licensees can be prepared in accordance with the provisions of the Swiss Code of Obligations, in contrast to the rigid rules for traditional banks as stipulated in the Banking Ordinance.

In summary, it can be said that the introduction of the FinTech license has simplified the majority of the banking regulations under Swiss law which may open new doors for FinTech companies to relocate to Switzerland.

You can download the full article here. (PDF, 575 Kb)

December 2018 | Authors: Marcel Hostettler, Michelle Wiki, Sophie Schmid

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