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EU’s Financial Regulatory Grip Tightens, Switzerland and Liechtenstein Feel the Pinch

Tensions between Switzerland and the European Union continue to simmer, with financial institutions in both countries facing increasing restrictions on access to third-party services and infrastructures. The situation has reached a critical point, with pending equivalence decisions from the European Commission hanging in the balance.

Switzerland’s Equivalence Status

The Swiss stock exchange, SIX, has already lost its equivalence status, while decisions on central counterparties (CCPs) and central securities depositories (CSDs) remain outstanding. Without an equivalence decision, financial institutions can only use these services during regulatory transition periods, leaving them vulnerable to losing access over time.

Liechtenstein’s Complex Relationship

Liechtenstein, a member of the European Economic Area (EEA), is also feeling the squeeze. Although it has implemented EU regulations and guidelines on banking and financial markets, its relationship with Switzerland has created complexities. The Vaduz Convention, signed in 2002, has helped alleviate some issues, but Switzerland still lacks the same level of access to the European market as EEA members.

Consequences for Financial Institutions

Financial intermediaries would be forced to use central securities depository services from another provider, warned the Financial Market Authority Liechtenstein (FMA), emphasizing the need for exit strategies. “This change would take considerable time and result in high costs.”

Banking Associations’ Guidelines

Meanwhile, banking associations in Liechtenstein have been issuing their own guidelines and recommendations, which some critics argue could undermine the authority of the FMA. The association’s quasi-regulatory activity has raised concerns about its impact on the rule of law and external perception.

Implications for EU-Swiss Relations

The situation highlights the complexities of EU-Swiss relations and the challenges faced by financial institutions in both countries. As tensions continue to simmer, it remains to be seen how the European Commission will address the pending equivalence decisions and whether Switzerland will eventually join the EEA.