Financial Crime World

Banking Regulations in Liechtenstein

Overview

Liechtenstein has implemented various regulations to ensure the stability and security of its banking system. This article provides an overview of key aspects of these regulations, including sanctions for violating banking laws, the resolution regime for banks, client asset protection, bail-in tools, and gone concern capital requirements.

Sanctions for Violating Banking Regulations

In case of a violation of banking regulations, the Financial Market Authority (FMA) can impose severe penalties. These include:

  • Revocation or Expiry of License: The FMA can revoke or expire a bank’s license if it fails to comply with regulatory requirements.
  • Dissolution of the Bank: In extreme cases, the FMA may dissolve a bank that has repeatedly violated banking regulations.
  • Fines: Banks found guilty of violating regulations may be fined heavily.
  • Imprisonment: Individuals responsible for violating banking regulations can face imprisonment of up to three years.

Resolution Regime for Banks

Liechtenstein has implemented the Bank Recovery and Resolution Directive 2014/59/EU (BRRD), which provides a framework for resolving banks in crisis situations. The Law on Recovery and Resolution of Banks and Investment Firms (Sanierungs- und Abwicklungsgesetz/SAG) came into effect on January 1, 2017.

Client Asset Protection

Client assets and cash deposits are protected by the Liechtenstein Banking Act, which requires banks to ensure adequate protection of deposits and investments with supervised financial service providers. The Deposit Guarantee and Investor Compensation Foundation PCC (Einlagensicherungs- und Anlegerentschädigungsstiftung SV, EAS) provides a guarantee for bank deposits.

Bail-in Tool

Liechtenstein has transposed the BRRD into national law, which includes a bail-in tool as a possible resolution mechanism. This tool allows authorities to convert certain bank liabilities into equity in case of a crisis.

Gone Concern Capital (TLAC)

Liechtenstein has implemented the TLAC standard, which requires banks to hold capital in case of a bank’s failure. This ensures that banks have sufficient resources to withstand financial shocks and maintain stability in the financial sector.

Overall, these regulations demonstrate Liechtenstein’s commitment to ensuring the stability and security of its banking system. Compliance with these regulations is crucial for maintaining trust and confidence in the financial sector.