Liechtenstein’s Approach to Fintech Regulations: A Primer
Introduction
In recent years, fintech has emerged as a significant player in the global financial landscape. As such, regulatory bodies have been working to create a framework that balances innovation with consumer protection. In Liechtenstein, the Financial Market Authority (FMA) plays a crucial role in shaping the country’s fintech regulations.
Communication with the FMA
According to industry experts, communication with the FMA is excellent, allowing for a personal and proactive approach to new projects. This includes filing a legal opinion examining the business model and token functionality, which helps to receive a preliminary examination from the authority.
Current Regulations
Currently, regulations regarding fintech are relatively sparse in Liechtenstein. However, the government has taken steps to define virtual currencies, including cryptocurrencies, under the Due Diligence Act. Additionally, a Blockchain Law is being developed to regulate token economies as a whole, without stifling innovation in commercial businesses related to blockchain and cryptocurrency applications.
Regulatory Framework
The FMA is responsible for regulating fintech products and services, which includes various laws and regulations governing financial services. These include:
- Banking Act
- Asset Management Act
- Payment Services Act
- E-money Act
- And more…
The anticipated Blockchain Law will undoubtedly shape the governance of fintech businesses in Liechtenstein.
Licensing Requirements
Under certain conditions, fintech businesses are subject to licensing requirements. If services provided fall under regulation by these laws, licensing will likely apply, although several exemptions may apply depending on the exact activities conducted. Further, even if no special permit is required, a permit may still be necessary for a trade license.
Prohibited Activities
Some fintech products or services are prohibited in Liechtenstein, including:
- Peer-to-peer lending
- Naked short-selling activities
Additionally, general regulatory framework applies to all financial activities, and any activity exceeding this framework will be deemed prohibited without a corresponding license.
Data Protection and Cybersecurity Regulations
Data protection and cybersecurity regulations also play a crucial role in the fintech landscape. As Liechtenstein is a member of the European Economic Area, the EU General Data Protection Regulation (GDPR) applies, while common liability law is relatively strict, meaning that the strategic management level of an entity may be held liable for failing to install appropriate cybersecurity measurements.
Financial Crime Regulations
Financial crime regulations are also in place, with the harmonised Due Diligence Act covering all aspects of ‘know your customer’ (KYC) and anti-money laundering. However, these regulations do not apply to strictly crypto transactions, but rather when a third party is involved, such as when exchanging crypto for fiat currency.
Compliance Requirements
To ensure compliance, fintech businesses must fully comply with the Due Diligence Act whenever fiat currency is involved. Additionally, consumer protection laws and regulations apply, including:
- Distance and foreign trade laws
- Mandatory right of consumers to withdraw from agreements within 14 days after conclusion
Competition Regulation
In terms of competition regulation, concerns may arise as with any commercial product or service.
Cross-Border Provision of Fintech Products and Services
Cross-border provision of fintech products and services raises regulatory issues concerning:
- Operating jurisdiction rules
- Currency controls
- Particularly when marketing is directed at foreign jurisdictions