Compliance Risks in Financial Services in Liechtenstein Highlighted by FMA

The Liechtenstein Financial Market Authority (FMA) has released its latest Financial Stability Report 2022, painting a picture of a sound and stable financial sector. However, the report also highlights increasing compliance risks amidst global vulnerabilities.

Systemic Risks in the Financial Sector

According to the report, systemic risks in Liechtenstein’s financial sector are limited, with the banking sector remaining resilient despite a worsening global outlook.

Areas of Concern

FMA analysts identified several areas of concern, including:

• Real Estate Sector: The real estate sector poses a risk to private households’ debt servicing capacity in the event of a global recession.
• Climate Change and Digitalization: The potential impact of climate change and digitalization on financial stability is also highlighted.

Recommendations for Financial Institutions and Authorities

To mitigate these risks, the FMA has issued recommendations for financial institutions and authorities:

• Banks:
  • Strengthen structural efficiency
  • Prioritize sustainable lending standards
• Insurance Companies:
  • Maintain a reasonable level of profitability
  • Ensure solvency
• Pension Schemes:
  • Ensure sustainable coverage ratios

Call to Action for the Government and Financial Sector

The report urges the government to proceed with accession negotiations with the International Monetary Fund (IMF) to further enhance its financial sector’s resilience. The report serves as a wake-up call for players in the financial sector and authorities to prepare for potential negative extreme scenarios, emphasizing the importance of compliance and risk management in Liechtenstein’s financial services industry.

In summary, while the report highlights some areas of concern, it also emphasizes the importance of proactive measures to mitigate risks and ensure the stability of Liechtenstein’s financial sector.