Fintech Investigations Soar in 2020: ICOs Remain Key Catalyst

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The Swiss financial regulator, FINMA, has released its annual report for 2022, highlighting the growing importance of fintech-related investigations. The agency’s supervisory focus on capital and liquidity requirements led to a significant increase in cases involving companies holding fintech licenses.

FINMA Withdraws Fintech License for First Time

In a notable development, FINMA had to withdraw a fintech license for the first time due to concerns over financial obligations that threatened the solvency and/or liquidity of certain companies. This move underscores the agency’s commitment to ensuring market stability and investor protection.

FINMA also reported an increase in Swiss companies offering secondary market-related financial services based on blockchain technology, which attracted significant interest from investors. However, only a few cases have been made public, with notable examples including the E-Coin issued by QUID PRO QUO Association and envion AG’s EVN-Token.

FINMA Maintains Warning List

The agency maintains a warning list of individuals and entities suspected of carrying out unauthorized activities under financial market regulations. This list serves as a valuable resource for investors and market participants seeking to identify potential risks.

Non-Financial Services Regulations Take Center Stage

In addition to fintech-related investigations, FINMA has been focusing on non-financial services regulations, including the Data Protection Act and the Federal Act on Information Security. The revised FINMA Circular 2023/1 Operational Risks and Resilience – Banks now includes specifications for critical data risk management, which extends the scope of protected data beyond electronic client data.

Cybersecurity Obligations Emerge

The Federal Act on Information Security and its implementing ordinances entered into force in January 2024, requiring critical infrastructure operators, including private parties, to report cyberattacks to the National Cyber Security Centre within 24 hours. This obligation applies to companies subject to various financial regulations, including the Banking Act.

Private Sector Initiatives Take Shape

Industry participants are also taking steps to define standards and best practices in fintech. For example, the Swiss Bankers Association has developed guidelines for opening corporate accounts for DLT companies. These initiatives demonstrate the importance of collaboration between regulators, industry players, and investors in shaping the future of fintech.

Conjunction of Unregulated and Regulated Products

While there are no specific rules governing the conjunction of unregulated and regulated products and services, financial service providers must take appropriate measures to avoid conflicts of interest. FINMA may grant exemptions subject to applicable laws.

AML and Sanctions Rules Impact Fintech Companies

Many fintech companies qualify as financial intermediaries and are subject to anti-money laundering (AML) regulations. These obligations include due diligence requirements, reporting obligations in the event of suspicious activity, and freezing assets under certain conditions. Swiss AML regulation is relatively easy to comply with and should not represent a significant burden for fintech companies.

Conclusion

As the fintech landscape continues to evolve, it remains essential for investors, market participants, and regulators alike to remain vigilant and adapt to changing regulatory requirements and industry standards.