Financial Crime World

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Compliance Risks in Fintech in Switzerland: A Growing Concern

The fintech sector in Switzerland has experienced significant growth in recent years, with over 400 active participants in the country’s ecosystem. This dynamic and diverse landscape boasts both emerging startups and established enterprises offering digital payment services, automated financial advice, digital asset trading, and more.

Regulatory Framework

Regulatory oversight of the Swiss fintech sector follows a technology-neutral and principle-based approach, relying on existing regulatory frameworks and stringent compliance requirements designed to ensure financial integrity and consumer protection. The Swiss Financial Market Supervisory Authority (FINMA) has introduced several regulatory changes to facilitate fintech advancement.

Fintech License

The “fintech license” or “banking license light” allows businesses to accept deposits of up to CHF 100 million without engaging in traditional commercial banking activities.

Regulatory Requirements for Specific Sectors

  • Robo-advisors: Subject to rules on best execution
  • Online lenders: Must comply with anti-money laundering (AML) regulations
  • Fund administrators: Adhere to specific regulatory requirements
  • Insurance companies: Evaluate their regulatory implications based on overarching principles governing the provision of insurance services

Regulation of High-Frequency and Algorithmic Trading

High-frequency and algorithmic trading are regulated under the Financial Market Infrastructure Ordinance (FMIO), which requires stock exchanges, multilateral trading systems, and organized trading systems to have proper systems in place to ensure orderly trading.

Insurtech and Regtech Requirements

  • Insurtech companies: Evaluate regulatory implications based on overarching principles governing the provision of insurance services
  • Regtech providers: Comply with general outsourcing requirements and service-level agreements

Blockchain and Distributed Ledger Technology (DLT)

Blockchain and DLT are subject to existing rules concerning risks, liability, intellectual property, AML, and data privacy. The Swiss Parliament has approved a new legislation known as the DLT Law, which includes amendments aimed at increasing legal certainty in the transfer of DLT-based assets and providing a new authorization category for DLT Trading Facilities.

Criminal Offenses Under Swiss Law

Fintech companies operating in Switzerland must also be aware of the criminal offenses under Swiss law, including:

  • Fraud
  • Forgery
  • Mismanagement
  • Bribery
  • Corruption
  • Money laundering

Consequences of Non-Compliance

Failure to comply with regulatory requirements can result in severe consequences, including fines and even imprisonment.

Conclusion

In light of these compliance risks, fintech companies operating in Switzerland would do well to prioritize regulatory compliance and ensure that they have robust systems in place to detect and prevent fraud, as well as to manage other compliance risks.