Are we on the brink of a digital revolution in the financial world? Terms like FinTech, InsurTech and RegTech are heard more and more frequently. Also the Federal Council and the parliament have dealt with FinTech. One important element of the new regulation is the FinTech-License. But what is it all about? Will the Swiss financial center be strengthened as a FinTech location? FinTech FinTech means the combination of financial services and technology. The term is used in connection with products and services, which through the use of new technologies change or facilitate the handing of financial services. It encompasses innovative applications, Software, etc. which advance the digitalization in the field of financial services, are globally connected and are available around the clock. This leads to a faster and more efficient processing of transactions. To date, FinTechs are being established mainly in the field of Robo-Advice (placing recommendations, which are generated through automatic analysis procedures) as well as mobile payment, Blockchain technologies and automatic decisions with respect to granting loans.
Permit or registration according to financial market laws Frequently, such companies offer services or develop technologies, without themselves being subject to financial market laws. This, however, needs to be examined on a case-by-case basis. The general rules are as follows:
Whoever transfers money from one account to another or brokers insurances has to keep in mind the necessary registrations as a financial intermediary in accordance with the Anti-Money Laundering Act or as an insurance broker.
Companies which accept monies should verify before beginning to operate, if they require a license or if they can rely on an exception.
Whoever intends to insure the risks of other persons should check in advance, if a license is required under the Insurance Oversight Act.
Regulation restricts development in Switzerland Registering as a financial intermediary or as an insurance broker is in principal feasible also for smaller companies; however, the administrative effort has operational requirements. Additionally, it will affect the achieved margin.
A different situation arises, if a banking license is required. An application for a banking license is in general tied to substantial effort and costs. Swiss law continues to be more restrictive in this area when compared to other jurisdictions. Unlike EU law, Swiss law does not know an e-money license. This can lead to business models not being able to be implemented or at least, not in Switzerland, if the company does not locate a local bank as a cooperation partner. The development in the field of FinTech is thus curbed.
FinTech-License as a solution The Federal Council has suggested in the dispatch dated February 1, 2017 to introduce a new license category for companies, accepting deposits from third parties up to a maximum amount of CHF 100 million, without granting loans. Facilitated conditions for permits and operational authorizations shall apply to such companies. These conditions apply to all companies, not just FinTech-companies.
The most important points are as follows:
Substantially reduced minimum capital requirements
Substantially reduced requirements regarding equity capital and liquidity
No deposit guarantee
Lowered requirements regarding accounting and audit
The implementing provisions will be decisive The newly proposed art. 1b of the Bank Act merely contains a basis for the granting of a new license. The decisive details are yet unknown, due to the draft implementing provisions not being available yet. It will be crucial for the implementing provisions to take into account the particularities as well as the reduced need for customer protection, in order for the market-entry barriers to actually be lowered.
Meaning of the FINMA-Practice Not less important will be how the FINMA handles this change in practice. It is to deplore in this context, that the new license, by being implemented through the Bank Act, appears like a light version of a banking license. This bears the risk that, in case specific rules should be missing, that the banking regulations could be applied as a model.
Invitation by the FINMA to interested parties In its guidance 3/2017 dated July 6, 2017, FINMA has affirmed its support of the Federal Councils' initiative. At the same time, FINMA has invited interested parties to participate in a survey.
Switzerland is under pressure. The simultaneous legislative procedure and the preparation of the implementation by the FINMA is appreciated. This way, the implementation of the license will be possible in a timely manner and it will strengthen Switzerland as a location for FinTech-companies.