In February 2017, we reported on the opening of 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. The consultation process was closed on 8 May 2017. Following certain suggestions made, the Federal Council during its meeting of 5 July 2017 implemented the proposed changes to the law resulting in simplifications not only for FinTech firms but also for established financial service providers. Read more about the amendments which will enter into force on 1 August 2017.
1. Extension of timeframe for holding settlement accounts:
Accounts held for clients purely for settlement purposes are not deemed to be bank deposits and hence are not subject to a banking licence provided that settlement takes place within a timeframe of 60 calendar days. This is a significant extension of the timeframe for settlements, which previously had to take place within 7 days. This timeframe does not apply to securities dealers for which there is no specific timeframe according to existing FINMA practice.
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. However, based on the new rules, no banking licence is required where
(i) the funds held do not exceed CHF 1 million,
(ii) the funds are neither interest bearing nor are they reinvested, and
(iii) the depositors were informed in advance (i.e. prior to contributing the deposit) and evidenced in the form of text, whether in writing or otherwise, that the deposit taking entity is not supervised by FINMA and that the funds are not covered by deposit protection.
These requirements are generally speaking cumulative, which means that presently - if only one requirement is not met – a full-fledged banking licence is required. Furthermore it must be noted that the laws preventing money laundering and terrorism financing remain fully applicable to the innovation zone.
Companies mainly focussing on a commercial-industrial activity and using the deposits of the public to finance this activity, must fulfil the requirements (i) and (iii) above, but need not meet section (ii). This exception is targeted at allowing for reinvestments in crowd lending projects. In all other cases reinvestment remains strictly prohibited and the deposits must remain on the account.
If the threshold of CHF 1 million is exceeded, FINMA must be notified within 10 calendar days and an application for a banking licence in accordance with the requirements of the Federal Banking Act must be filed with FINMA within 30 calendar days. It remains unclear though whether such application would have to be filed even if the funds held are reduced below the threshold of CHF 1 million within the timeframe of 10 calendar days. In the event that an application must be filed FINMA may prohibit the company in question from accepting further deposits from the public until it has decided on the application. At present the requirements for a full-fledged banking licence would need to be met once the threshold of CHF 1 million has been exceeded. Once FinSA is in force such cases could first be covered by the «banking licence light» (see below) before a full banking licence would be required.
3. Future amendments already addressed by Parliament:
It is noteworthy that Swiss parliament has also already addressed further changes to the Federal Banking Act which will lead to a reduced regulatory burden for companies holding no more than CHF 100 million non-interest bearing funds from the public which may not be reinvested (so-called «banking licence light»). These changes will enter into force in the context of the new Financial Services Act (FinSA) and the Financial Institutions Act (FinIA). The amendments are expected to provide for significantly lighter requirements in particular relating to the applicable accounting rules and the financial audit requirements. The funds from the public shall not be covered by deposit protection as they would be in the case of an ordinary bank, which fact must be made known to the depositor prior to making the deposit. We expect that the Swiss parliament will adopt the FinSA/FinIA bill end of 2017 or beginning of 2018. The new laws will then enter into force no less than six months after having been adopted.
Read our blogpost dated February 9, 2017 about Swiss Regulation of FinTech - Federal Council initiates consultation on new rules