The New FinTech License

TheNewFintechLicense_light_license

08 Jan 2019 The New FinTech License

From 1 January 2019, companies are able to apply to FINMA (the Swiss Financial Market Supervisory Authority) to obtain a new type of license, known as the “FinTech license” or the “light banking license”. Companies that accept public deposits of up to CHF 100 million in relation to their activities and do not carry out traditional banking activities are eligible to apply. The “FinTech license” has its legal basis in Article 1b of the Federal Banking Act (the “BankA”).

 

In order to set out the requirements that apply to applicants and holders of this new type of license and to define its legal framework in more detail, a number of amendments to the Federal Banking Ordinance (the “BankO”) have also been adopted by the Swiss Federal Council on 30 November 2018[1].

 

The FinTech license aims in particular at boosting innovative financial companies – mainly FinTech companies[2] which deal with the management and/or the conservation of crypto-currencies – by setting up relaxed requirements compared to the actual banking license[3].

 

As with the BankA, the BankO has entered into force on 1 January 2019.

 

Context

 

With the aim of promoting innovation in the financial sector and removing the barriers to market entry for FinTech companies, the Swiss Federal Council has now introduced three innovative measures[4].

 

The first two measures, defined in the BankO, were implemented on 1 August 2017 and are the following[5]:

 

  • extending the maximum holding period of third-party funds in settlement accounts from seven to 60 days[6]; and
  • an innovation “sandbox”, in which it is permitted to accept public deposits of up to CHF1 million, provided in particular that information obligations towards the clients are respected[7]. Before this amendment, only banks had the right to accept deposits from the public on a professional basis.

 

The FinTech license, being the third measure, stands between the aforementioned “sandbox” and the highly regulated traditional banking business and aims at creating an adequate, “less stringent”, regulatory framework[8].

 

As the financial technologies sector and the associated business models are constantly evolving, the new “light banking license” is not only intended for FinTech companies, but for any company[9] that accepts deposits (within the limits of the license restrictions) from the public without engaging in any traditional banking activities[10].

 

In other words, companies operating outside of the FinTech sector may obtain an authorisation based on Article 1b BankA, provided that they comply with the legal requirements. It should also be noted that traditional financial institutions, such as banks, are not prevented from creating a company or acquiring stakes in a company that holds a FinTech license.

 

Conditions for granting a FinTech license

 

The FinTech license will be granted to any company that meets the three following cumulative conditions:

 

  • The company is mainly active in the financial sector (Article 1b para. 1 BankA).
  • The company accepts deposits from the public up to a maximum of CHF 100 million or publicly solicits such deposits (Article 1b para. 1 let. a BankA):
    • according to Article 14f para. 1 BankO, the holders of a FinTech license are required to hold deposits separately from their own assets or, provided that they submit their accounts to an ordinary financial audit[11], book them in a way to be able to identify them separately at any time;
    • in light of Article 14f para. 2 BankO, the deposited funds must be available in the form of liquid assets in order to be able to be returned or transferred within an appropriate period of time to clients. In this context, the assets could, for instance, be held as sight deposits with a bank or another FinTech licence holder or in the form of category 1 high-quality liquid assets under the meaning of Article 15 of the Liquidity Ordinance[12];
    • the deposited funds have to be kept in the currency in which the clients will be able to exercise their right of reimbursement (Article 14f para. 3 BankO).
  • The company does not carry out traditional banking activities (Article 1b para. 1 let. b BankA) like, for instance, the lending business with asset-liability management, the investment of the deposits or the charging of interest on the deposited funds[13].

 

Other requirements worth mentioning

The BankO provides for less stringent requirements for FinTech license holders – compared to the actual banking license – in terms of organisation[14], risk management[15], compliance[16] or financial resources[17]. However, the requirements set out in the BankA are still applicable by analogy, to the extent that the application of its articles makes sense[18], to FinTech license holders[19].

 

Such requirements are for instance:

 

  • that FinTech license holders have to permanently hold a minimum capital which is equivalent to 3% of the public deposits accepted; the minimum capital may not be less than CHF 300’000[20];
  • that an institution with a FinTech license have to have its registered office in Switzerland and to conduct its business activities in this country[21].

 

It must be noted that FinTech license holders are also required to specifically inform their clients of the risk resulting from their business model, services and technology that they are using, as well as of the fact that the deposits are not covered by the deposit guarantee[22]. Indeed, deposits held with FinTech licence holders are not, as opposed to banks, subject to the Swiss depositor protection regime.

 

Finally, the compliance of holders of a FinTech licence with the legal requirements are continually monitored by FINMA[23] (which will grant the licenses) and said holders need to appoint a regulatory audit firm[24].

 

Features of the license

The Fintech license allows companies to solicit, accept and hold public funds on a professional basis up to a maximum amount of CHF 100 million[25]. However, in order to maintain the innovation potential and the competitiveness of the Swiss financial marketplace, the Swiss Federal Council may adapt the CHF 100 million limit in the future by increasing it[26].

 

Like banks, companies holding a FinTech license can constitute a financial group. In this case, the CHF 100 million deposit holding limit applies to the entire group and not to each company of the group separately[27]. The FINMA retains the power to grant exemptions if individual entities are independent from the rest of the group[28].

 

Other comments

As is the case for banks, the Data Protection Act, the Financial Services Act, the Anti-Money Laundering Act as well as due diligence requirements apply to FinTech license holders in their capacity as financial intermediaries.

 

FINMA has also proposed to introduce less strict organisational requirements for FinTech license holders in respect of anti-money laundering requirements in the Anti-Money Laundering Ordinance[29]. For instance, one specific relaxation in line with the principle of proportionality see small institutions, unlike banks, being exempt from the requirement to establish an independent anti-money laundering unit with monitoring duties under Article 25 of the Anti-Money Laundering Ordinance.

 

This ordinance has been implemented on 1 January 2019.

 

 

Maxime Staub

 

Author:

Maxime Staub

Criminal, white-collar crime and commercial litigation; FINMA administrative proceedings.

 

 

 

 

 

Footnote References:

 

[1]           Press release of the Federal Council dated 30 November 2018: https://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-73186.html.

[2]           e.g. crowdfunding platforms or electronic payment services providers.

[3]           Gmür Bruno/Bochud Philippe, BANQUES ET NEGOCIANTS – UN VOLUME TOUJOURS IMPORTANT DE MODIFICATIONS, EF 1-2/18, p. 139.

[4]           Press release of the Federal Council dated 30 November 2018: https://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-73186.html.

[5]           Press release of the Federal Council dated 2 November 2016: https://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-64356.html.

[6]           See Article 5 para. 3 let. c BankO.

[7]           See Article 6 para. 2 to 4 BankO.

[8]           Press release of the Federal Council dated 2 November 2016: https://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-64356.html; FINMA Guidelines for FinTech licence applications pursuant to Article 1b BankA of 3 December 2018, p. 1.

[9]           The only legal forms of companies authorised are: limited liability companies (“sociétés anonymes“), public limited companies (“sociétés anonymes de droit public“), limited partnerships with a share capital (“sociétés en commandite par action“) and private limited companies (“sociétés à responsabilité limitées“); Commentaries of the Federal Department of Finance on the amendments of the BankO dated 30 November 2018, p. 15: https://www.newsd.admin.ch/newsd/message/attachments/54882.pdf.

[10]          Press release of the Federal Council dated 2 November 2016: https://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-64356.html; FINMA Guidelines for FinTech licence applications pursuant to Article 1b BankA of 3 December 2018, p. 1.

[11]          Under Article 727 of the Swiss Code of Obligations.

[12]          RS 952.06.

[13]          Article 14f para. 2 BankO; Commentaries of the Federal Department of Finance on the amendments of the BankO dated 30 November 2018, p. 6: https://www.newsd.admin.ch/newsd/message/attachments/54882.pdf.

[14]          See Article 14c BankO.

[15]          See Article 14e BankO.

[16]          See Article 14e BankO.

[17]          See Article 17a BankO.

[18]          The BankO specifies (new Article 1 BankO) to what extent the Articles of the BankA are applicable to the persons referred to in Article 1b BankA.

[19]          Commentaries of the Federal Department of Finance on the amendments of the BankO dated 30 November 2018, pp. 6 et 7: https://www.newsd.admin.ch/newsd/message/attachments/54882.pdf.

[20]          See Article 17a para. 1 BankO.

[21]          See Article 14a para. 2 BankO.

[22]          See Article 7a para. 1 and 2 BankO.

[23]          Commentaries of the Federal Department of Finance on the amendments of the BankO dated 30 November 2018, p. 7: https://www.newsd.admin.ch/newsd/message/attachments/54882.pdf.

[24]          See Article 1b para. 4 let. c BankA.

[25]          See Article 1b para. 1 BankA.

[26]          See Article 1b para. 2 BankA.

[27]          See Article 24a para. 1 BankO.

[28]          See Article 24a para. 2 and 3 BankO.

[29]          See Article 75a of the Anti-Money Laundering Ordinance.



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