New Fintech regulation – Banking license “light”
Switzerland is currently reducing hurdles in its financial market regulation in view of the expected dynamic development of the FinTech sector. Part of the package is a new banking license “light” allowing for the deposit business up to a certain amount under facilitated conditions. This new provision shall be introduced in connection with the Financial Services Act (FinSA) and the Financial Institutions Act (FinIA).
Under the current Swiss financial market regulation, many projects in the field of innovative financial technologies (FinTech) fall within the scope of the Banking Act and would, therefore, require a banking license from the Swiss Financial Market Supervisory Authority (FINMA). In particular, companies with business models based on accepting client funds on a professional basis are affected, as for example in the case of crowdfunding. The enormous organizational and financial expenses in connection with a banking license deters many companies from entering in the Swiss market. Therefore, the Swiss Federal Council as well as the Swiss parliament now intend to create a legal framework for innovative companies.
Part of this new framework is, for one thing, the so called „sandbox“, which was implemented in the Banking Ordinance in August 2017. FinTech companies are allowed to accept deposits from the public up to a maximum amount of CHF 1 million without a banking license, as long as the assets are neither invested nor interest-bearing. As a result, such companies can test the viability of their business models before expanding their activities and apply for a banking license. Unlike the UK sandbox, the Swiss instrument is available for all market participants, is unlimited in time and does not provide for prudential supervision by FINMA. Anti-money laundering provisions, however, are applicable.
Banking license “light”
In cases where the deposit threshold of CHF 1 million is being exceeded, the new framework adopted in the realm of FinSA and FinIA shall provide for a banking license “light”, allowing for a deposit business (without investing and interests) up to the amount of CHF 100 million under facilitated conditions. The corresponding changes of the Banking Act are currently under discussion in parliament.
Requirements for the banking license “light”
- As with the sandbox, companies benefitting from the banking license “light” shall not be allowed to invest the deposited assets or pay interest on them. They are barred from the interest margin business and are not permitted to use the term “bank” in connection with their activities. Yet the Banking Act shall be applicable by analogy.
- The threshold value for the banking license “light” will be set at CHF 100 million. Decisive is the amount of the overall accepted deposits at any time. The Federal Council shall have the competence to adapt this threshold value to the expected dynamic development of the FinTech sector. Furthermore, FINMA can grant exemptions under certain conditions in particular cases, provided, however, that customer protection is ensured by particular technical means.
- The confidentiality obligation pursuant to art. 47 Banking Act (“banking secrecy”) applies mutatis mutandis, just as the due diligence obligations against money laundering and financing of terrorism.
Relaxations for the banking license “light”
- Instead of the stricter accounting and auditing standards of the Banking Act, the general standards of the Swiss Code of Obligations (CO) shall be applicable.
- The supervisory audit can be carried out either by an auditing firm authorized by the Federal Audit Oversight Authority (FAOA) (staatlich beaufsichtigtes Revisionsunternehmen) or by an auditing firm subject to less stringent authorization requirements. The facilitations are to be determined by the Federal Council.
- The provisions on deposit insurance are not applicable. In order to ensure customer protection, the companies benefitting from the banking license “light” are obliged to inform the clients about the missing deposit insurance before a deposit takes place.
- The minimum capital requirements shall be set at 5% of the accepted deposits, but no less than CHF 300,000. This is significantly below the requirements which apply to companies obtaining an ordinary banking license.
Chances for FinTechs
The implementation of the banking license “light”, which can be expected mid- 2019 at the earliest, will significantly lower the market entry hurdles for FinTechs which accept public deposits. This might have a positive effect on, among others, certain providers of payment systems, crowdfunding platforms or blockchain based companies. Furthermore, the relaxations will increase the attractiveness of the Swiss financial market and the competition between the financial players. Companies accepting funds – namely all market participants, not only FinTechs – are well advised to evaluate which license they require (if any) before starting their business activity in Switzerland.