Introduction
The broad interpretation of deposit, in the sense of banking legislation, could be strongly limiting for the establishment of start-ups in Switzerland, particularly those aiming to evolve on the “blockchain technology” and in the FinTech areas.
The definition of a deposit is focused on the protection of the depositor. A public deposit is a commitment made for one's own account to third parties, whereby the person making the commitment becomes liable for the corresponding service [1].
Under the Banking Act (“BA”; SR 952.0), persons who do not hold a banking license may not accept deposits from the public in a professional purpose (cf. art. 1 par. 2 BA) or advertise the acceptance of such deposits (art. 49 par. 1 let. c BA).
According to law, a “bank” is anyone who is primarily active in the financial sector and accepts deposits from the public in excess of CHF 100 million or appeals to the public to obtain them (art. 1a BA). Such a company may only start its activity after having obtained the authorisation of the FINMA and it may not be entered in the commercial register before having received this authorisation (art. 3 par. 1 BA).
The principle is therefore clear: to hold deposits, you need a banking license.
This obliged any companies to comply with numerous due diligence requirements and to set aside substantial equity capital and to require a banking license before launching any activity.
Of course, since then, the Swiss Parliament has introduced new, lighter and easier-to-obtain authorisation, as well as exceptions allowing new companies to set up and operate (under conditions and thresholds) without having to obtain a banking license, while at the same time securing the market and investors.
A brief reminder of some exceptions.
Exceptions
I. All liabilities to customers are considered to be public deposits (art. 5 par. 1 of the Banking Ordinance (“BO” ; SR 952.02)) (and there is a presumption that all deposits are public deposits [2]), except:
a. if the funds are held under the 60-days time limit(art. 5 par. 3 lit. c BO) : non-remunerated client account balances which are only used to execute client transactions with precious metal dealers, asset managers or similar companies are not considered as deposits, provided that the execution takes place within 60 days.
"If the money held is only used to execute client transactions, does not earn any interest and is executed within a maximum of 60days, it is not considered a deposit, provided it is not a client account of a securities dealer. This exception is justified since the sole purpose of execution accounts is to hold the liquidity necessary for the execution of transactions on behalf of clients. […]” [3].
This exception is interesting, but even though the delays has been lengthen from 7 days to 60 days, it can still be hard to respect in practice.
b. if the funds are guaranteed by a bank (art. 5 par. 3 let. f BO) (default risk guarantee) : this exception requires the cooperation of a bank.
In this case, funds whose repayment and remuneration are guaranteed by a bank do not qualify as deposits. The risk of default by the holder of the funds is borne by the bank. All contributions are guaranteed during the time the holder is in possession of the public funds.
The choice of partners of the fund holder is therefore essential if he is completely unable to comply with the exceptions of the BO.
II. According to art.6 par. 1 let. a BO (20-rule), anyone who accepts more than 20 public deposits or cryptoassets in collective custody over a long period of time or appeals to the public to obtain public deposits or cryptoassets in collective custody is acting in a professional purpose within the meaning of the BA, even if he subsequently obtains fewer than 20 public deposits or cryptoassets.
This should not apply if the pool of assets under custody is always under CHF 1’000’000.- (CHF1’000’000.- rule). Anyone who accepts more than 20 public deposits or cryptoassets in collective custody over a long period of time or appeals to the public to obtain them is not acting in a professional purpose, within the meaning of the Banking Act, if he accepts, no more than CHF 1 million.
In the meantime he does not carry out any interest transactions and informs the depositors in written form or in any other form that can be proven by text, before they make the deposit that it is not supervised by FINMA and that the deposit is not covered by the deposit guarantee.
This exception allows a no maximum custody period for funds, but does not allow for the publication of any projects requiring a custody exceeding CHF 1’000’000.-.
Within the Sandbox exception, "it is possible to accept an unlimited number of deposits from the public - as opposed to twenty previously - for a total amount not exceeding CHF 1 million. Above this amount, authorisation should besought in any case. No authorisation or approval from any supervisory authority is required to enter this "test area", as long as the following conditions are met: the deposits must not be used for investment transactions and may not be remunerated by interest. The prohibition of investment means that deposits are held in the interest of the customer during the "custody period" without the possibility of interest transactions, benefiting from differences between active and passive interest; furthermore, it is not allowed to invest deposits in investment products.
Finally, contributors must be informed that the usual FINMA supervision does not apply and that the deposit is not covered by the deposit guarantee (Art. 6 para. 2lit. c nos. 1 and 2). The provisions on money laundering must in any case be complied with, even within this area […]"[4].
In addition, FINMA requires the deposits to be held in an account separate from the company's usual business accounts for day-to-day operations.
III. Taking action after obtaining a Fintech license.
The Swiss parliament established a new licensing category known as the FinTech license on 1st January2019.
These changes have required a corresponding adjustment of FINMA’s supervisory practice [5].
The audit criteria for FinTech companies are based on those established for banks and securities dealers. Although the audit process is less extensive and the reporting process simplified, a focus is made on the risks related to FinTech business models.
The conditions for authorization and supervision are less stringent than for the classic banking license.
According to art. 1bpar. 1 let. a BA, to obtain this light license, the company must, among other things, limit itself to passive operations and not accept more than CHF 100million in deposits from the public.
It is worth to recall that these deposits are not invested and no interest is paid on them.
This model is particularly suitable for young Fintech companies, but can of course be limiting in practice.
Conclusion
In short, Switzerland knows it has to promote innovation, and has proved it by adapting its antiquated system.
Thanks to the easing of deposit qualification or the professional character of deposit custody, Switzerland has validly created exceptions enabling new companies to operate diligently, while not yet having to apply for a banking license.
Last but not least, the arrival of the FinTech license is an alternative that typifies the flexibility and the art of the in-between that characterize Switzerland so well.
Footnotes
[1] ATF 136 II 43, c. 4.2 ; ATF 132 II 382, c. 6.3.1.
[2]Circ.-FINMA 08/3 « Dépôts du public auprès d'établissementsnon bancaires ».
[3]Favrod-Coune Pascal, Analyse de droit suisse du financement participatif,Lausanne 2018, p. 529.
[4]DuPasquier Ulysse, Le financement d'une jeune société, Basel, Neuchâtel 2019,p. 514.
[5]Circ.-FINMA 08/3 « Dépôts du public auprès d'établissementsnon bancaires ».
