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Swiss Regulation of FinTech – Federal Council initiates consultation on new rules

Posted by on 7 February 2017

The rapid evolution in FinTech has not only attracted the attention of the Swiss Financial Market Supervisory Authority (FINMA) but eventually pushed the Swiss government to propose FinTech specific amendments to the Banking Act and other financial laws. On 1 February 2017 the Federal Council opened a consultation on new draft regulations designed to reduce barriers to entry for FinTech firms and to strengthen the attractiveness of the Swiss financial markets.

FinTech-Froriep.jpgAs of today Swiss law does not have a concept of a "banking licence light" or in general any regulation that takes into account the specific requirements of FinTech companies. On a case by case basis dealings with the FINMA have so far often been geared at finding solutions which allows the FINMA to consider a FinTech firm to be outside of the regulatory scope – the quite prominent case of XAPO described below being one of them.

The draft amendments of the Federal Council do not regulate specific business models but rather set-out a legal framework suitable for all existing and future FinTech companies as well as other actors satisfying the legal conditions. The three major amendments are:

1. Deadline extension for settlement accounts

Accounts held for clients that are used purely for execution operations are currently not deemed to be bank deposits and hence not subject to a banking licence provided that the funds are kept for not more than 7 days. Unfortunately, the timeframe is unsuitable for crowdfunding models which if the crowdfunding period lasts for more than 7 days would be caught by the requirement to have a banking licence. Therefore, for FinTech firms that are not securities dealers, the Federal Council proposes to extend the period to 60 days.

2. Creation of an innovation zone

Under the Banking Act, anyone holding 20 or more deposits from the public or requesting deposits from the public is deemed to be a bank and hence required to obtain a banking licence. This requirement has a negative effect on innovation as start-ups are mostly unable to go through a costly and long authorisation process. As a result, the Federal Council recommends exempting innovative companies from requiring such a banking licence. They should be able to take more than 20 deposits from the public provided that the total amount held does not exceed CHF1m.

3. Introduction of a new category of banking licence, the so-called "FinTech licence"

FinTech companies tend to favour passive operations and not to reinvest the funds they hold. Current requirements for a banking licence are therefore unsuitable and lighter requirements should apply for FinTech companies that hold not more than CHF 100m non-interest bearing funds (not reinvested), in particular in respect of accounts disclosure, auditing and deposit guarantees. The Federal Council shall be entitled to amend the cap if necessary.

While the amendments should mostly affect the Banking Act and the Banking Ordinance, some provisions in the Auditor Oversight Act, the Money Laundering Act and the Financial Market Supervision Act should also be affected.

4. Practical relevance

The need for this new orientation is reflected in the difficult licencing process of XAPO, a FinTech company operating a bitcoin wallet and auxiliary services, such as a bitcoin debit card, out of Switzerland. Whilst their initial set-up could have been seen to require a banking licence, XAPO managed to structure its business model in a close to two year process with FINMA so that it can operate out of scope of banking regulation. But it remains a recognised financial intermediary for money-laundering purposes. At the same time the approval of the Swiss regulator is subject to XAPO meeting certain conditions. Perpetuating the approach to find tailored solutions would have been time and money consuming for applicants as well as for FINMA, distracting it from other supervisory tasks, and not in all cases may such solutions be found.

By adopting a "one-size-fits-all" model, Switzerland should stand out from other rival jurisdiction. For instance, while the Swiss sandbox is open to all players, is not supervised by the FINMA and is not limited in time, the United Kingdom only allows limited actors in their particular scheme, for a limited time and under close supervision of their supervisory body.

These modifications may facilitate the creation of FinTech start-ups and stimulate their development in the next years thus creating interesting business opportunities for the Swiss legal sector. A steady interest should therefore be kept in future developments.


If you liked this article you may also be interested in reading about Federal Council wants to modernise Swiss Corporate Law

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Photo: istockphoto/chombosan

Topics: Banking & Finance

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Dr. Catrina Luchsinger Gähwiler

Catrina is a specialist in financial market law and corporate law. She has a wealth of experience advising financial market clients, including banks, asset managers and investment vehicles, as well as substantial operational knowledge. She also serves on the management boards of various com-panies, some of which are in the financial services sector. Catrina joined our firm as an associate in the year 2000. She became a partner in 2007. Catrina advises financial services clients and investment companies on regulatory issues as well as on contractual aspects relating to the financial market industry. She furthermore has considerable experience in acquisition and financing transactions, in general corporate work, both for listed and privately held companies, in mergers and acquisitions – predominantly in the financial services sector – and regularly advises in equity capital market transactions both for SIX Swiss Exchange, where she is admitted as a listing agent, and for BX Berne eXchange. Chambers Europe and Chambers Global have identified her as a Recognised Practitioner in the field of banking and finance, where clients have commended her client orientation. She is also ranked as a leading lawyer in the IFLR1000 guide for financial services regulatory and M&A. Catrina obtained her law degree from the University of Zurich in 1991 and was admitted to the Zur-ich Bar in 1995. She gained her PhD in 2004. Her working languages are German, English and French. She is a member of the Zurich Bar Association, the Swiss Bar Association, the International Bar Association (IBA) and the International Pacific Bar Association.

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Benjamin Dürig

Benjamin is an experienced transaction lawyer with a focus on M&A and corporate finance transactions, and corporate law. Benjamin advises clients in M&A and corporate finance transactions and is an experienced team leader in complex transactions. He advises listed and non-listed entities, including regulated financial institutions. He has in-depth expertise on the legal issues relating to real estate in and outside of transactions, including regulatory aspects, environmental issues (polluted sites), and complex commercial lease agreements. Benjamin is a regular speaker to various audiences on topics relating to his practice, including international lawyers' conferences, commercial chambers and industry organisations. He joined our firm as an associate in 2009 and became counsel in 2017. Before that, he worked at a Zurich district court and a French-speaking law firm for a number of years. Benjamin’s law degree is from the University of Zurich (2003) and he was admitted to the Zurich Bar in 2007. He is a member of the Swiss Bar Association, the Zurich Bar Association, the Franco-Swiss Chamber for Trade and Industry, and of the International Association of Young Lawyers (AIJA). His working languages are German, French and English.

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Dunja Koch

Dunja Koch has expertise in all aspects of corporate and finance law, advising mainly UK and US clients with regard to Switzerland. She is the managing partner of the London office. She joined the firm in 1998 and became a partner in 2003. She regularly works on corporate and M&A deals, as well as leveraged and acquisition finance transactions, but also project, commodity and asset finance matters, including aircraft finance. Here, she acts on behalf of aircraft manufacturers, banks and leasing companies in relation to the Swiss aspects of acquisition of aircraft and engines. Her practice further covers regulatory matters, where she advises asset managers, funds, securities dealers and other financial institutions in relation to their cross-border activities in Switzerland. The Legal 500 United Kingdom 2018 recommended her as a top foreign lawyer in London. Chambers Global (2019) ranked her as leader in the fields of Banking & Finance (Switzerland) and Banking & Finance (UK). She was also specifically recommended in the 2018 edition of the Legal 500 EMEA for Transport Law matters and named one of IFLR1000’s Women Leaders- an elite cohort of the 300 leading female transactional experts in local markets globally. She is the only practitioner from Switzerland to be featured in the guide. Dunja Koch holds a law degree from the University of Zurich and a LL.M. from Queen Mary, University of London. She qualified in Geneva in 1997 and in England and Wales in 1999. She speaks German, French, English and Italian. She is registered on the roll of attorneys in Zurich and a member of the International Bar Association (IBA), Association Suisse de Droit Aérien et Spatial and the Aviation Club of the UK.

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Dr. Mark Montanari

Mark Montanari’s practice focuses on capital and financial markets, corporate law, start-ups as well as M&A and financing transactions. He regularly advises international and domestic clients in these fields, including public takeover and stock exchange laws and regulations. Mark Montanari joined our firm in 2010 and became counsel in 2017. Prior to that, he worked as a clerk at the District Court Emmental-Oberaargau and with a business law firm in Berne. Thereafter he worked as research and teaching assistant at the University of Berne (Institute of Business Law). After having graduated in law from the University of Berne in 2005, he was admitted to the Bar in 2008 and went on to complete a PhD (summa cum laude) in 2011 in the field of financial markets. His working languages are German and English. Mark Montanari is a member of the Zurich Bar Association, the Swiss Bar Association and the International Association of Young Lawyers (AIJA).

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