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Compliance Procedures in Banking in Liechtenstein

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The Principality of Liechtenstein has a well-established regulatory framework for banking activities. The Liechtenstein Financial Market Authority (FMA) is the primary regulator, while the Swiss National Bank (SNB) also plays a role due to Switzerland’s close economic ties with Liechtenstein.

Banking Licenses

To operate as a bank in Liechtenstein, financial institutions must obtain a banking license from the FMA. The type of activities that trigger the requirement for a banking license include:

Types of Licenses

  • Full banking license: required for institutions that engage in deposit-taking, lending, and asset management.
  • Payment institution license: necessary for companies that provide payment services, such as money transfer and card processing.
  • E-money issuer license: required for businesses that issue electronic money.

Automatic Permits

A banking license automatically permits certain other activities, including:

Additional Activities

  • Broker-dealer activities
  • Payment services
  • Issuance of e-money

However, these activities may still be subject to specific regulations and requirements.

Sandbox or License Light

Liechtenstein does not have a “sandbox” or “license light” regime for specific activities. However, the FMA offers a flexible regulatory approach for innovative financial institutions that meet certain criteria.

Crypto Assets

Regarding crypto assets, Liechtenstein has introduced a regulatory framework for digital assets. Crypto assets are considered securities and must be traded through regulated exchanges or platforms. The FMA requires licensed banks to hold sufficient capital to cover potential risks associated with crypto asset holdings.

Capital Requirements

The minimum capital requirements for licensed banks in Liechtenstein depend on the type of activities engaged in, the size of the bank, and other factors. The SNB sets the regulatory capital requirements, which are based on the Basel III framework.

Application Process and Timing

The application process for a banking license in Liechtenstein typically takes around 6-12 months. However, the FMA may require additional information or clarify specific requirements, which can extend the processing time.

Cross-Border Activity

Mere cross-border activity is not permissible without a banking license. Licensed banks must comply with local regulations and obtain approval from the relevant authorities before engaging in cross-border activities.

Organizational Requirements

Licensed banks in Liechtenstein must meet strict organizational requirements, including:

  • Sound corporate governance
  • Effective risk management
  • Appropriate remuneration policies

The FMA conducts regular audits to ensure compliance with these requirements.

Remuneration Policies

Liechtenstein has implemented restrictions on remuneration policies for licensed banks. These regulations aim to prevent excessive compensation practices and promote sound risk management.

Basel III Framework

Liechtenstein has adopted the Basel III framework, which sets out minimum capital and liquidity requirements for banks. The SNB is responsible for implementing these requirements in Liechtenstein.

Leverage Ratio

Licensed banks in Liechtenstein must meet the leverage ratio requirement, which limits their total exposure to a certain percentage of their eligible capital.

Liquidity Requirements

Liechtenstein has implemented the Basel III liquidity requirements, including the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR).

Financial Reporting

Licensed banks in Liechtenstein must publish their financial statements on an annual basis. Interim reporting is required for listed banks.

Consolidated Supervision

The FMA conducts consolidated supervision of licensed banks, which means that they are responsible for supervising not only the bank but also its subsidiaries and affiliates.

Acquisition Requirements

Reporting and approval requirements apply to the acquisition of shareholdings in or control of licensed banks. The FMA must be notified prior to any such transaction.

Eligible Owners

Liechtenstein has introduced conditions for eligible owners of licensed banks, including restrictions on major shareholders.

Bail-in Tool

Liechtenstein has introduced a bail-in tool for bank resolution, which allows the FMA to write off certain liabilities in the event of a bank failure. The regime applies only in situations where a bank is unable to meet its obligations due to insolvency.

Gone Concern Capital (TLAC)

Licensed banks in Liechtenstein must hold gone concern capital (“TLAC”), which represents an additional layer of protection for the financial system in case of a bank failure.

The recent trends in bank regulation in Liechtenstein include:

  • Increased focus on risk management and compliance
  • Enhanced capital and liquidity requirements
  • Introduction of new regulatory frameworks, such as the digital asset regime

Biggest Threat to Financial Sector Success

The biggest threat to the success of the financial sector in Liechtenstein is the potential for economic instability due to external factors, such as changes in global market conditions or geopolitical events.