Fintech License: Start January 1, 2019

Blockchain, Fintech, Financial market law

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

Two 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 August 1, 2017 by selective amendmentgs of the Banking Ordinance.

As of January 1, 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 which have already similar forms of licence types.

For companies which intend to accept public deposits on a commercial basis of up to CHF 100 million and do not plan to engage in any lending business and thus, do not perform any reinvestment activities regarding the deposits as well as do not 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 December 10, 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. Therefore, 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 regarding the granting of licences, the banking licence 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 they have to 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 which limit their activites to the deposit-taking business (acceptance of deposits from the public) and do not conduct any lending business with maturity transformation resp. interest payments (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 will not be reinvested, no interest payments;
    • the minimum capital 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 discourages 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 FinTech licence vs traditional banking licence

On December 3, 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.

A table shows the comparison of the guidelines for traditional banking licence applications dated August 12, 2012 with the recently published FinTech licence.

4. Conclusion

As shown above, the volume of documents to be submitted in regard with the application for a FinTech licence is still considerable. However, lower financial requirements apply with regard to the FinTech, such as a reduced minimum required capital of 3% of the public deposits, but at least over CHF 300,000 at any time. Furthermore, FinTech licensees do not have to comply with the provisions of the Capital Adequacy and Liquidity Ordinance as the acceptance of public deposits is limited to CHF 100 million and may neither be reinvested nor become subject to interest payments. By comparison, a traditional bank must meet strict liquidation and capital adequacy requirements and requires in particular a minimum capital of CHF 10 million. Finally, the accounting 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 requirements related to 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, 222 Kb).

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

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