Know Your Customer Regulations in Liechtenstein: Harmonization Efforts Underway

The Challenge of Know-Your-Customer Requirements

The financial sector in Liechtenstein has been grappling with the challenge of ensuring compliance with know-your-customer (KYC) requirements, which involve verifying the identity and validating the suitability of investors. The current process is often manual, time-consuming, and prone to errors, leading to inefficiencies and increased costs.

Current Challenges

• National implementation of EU-wide regulations varies, creating a fragmented landscape that hinders the realization of full potential.
• Third-party services offering KYC solutions are available but are limited by national borders and varying requirements.

The Onboarding Process

The onboarding process typically involves dealers or issuer agents collecting KYC data from investors, including:

• Personal identification information (name, address, date of birth, nationality) for natural persons
• Company registration details for legal entities

This data is then shared with the issuer for book-building purposes.

Harmonization Efforts Underway

To achieve harmonization, several levels of potential work are being explored:

Harmonizing Methods and Documents Used for Identification

• A common minimum list of required documents would alleviate the burden on both investors and banks.
• Individual banks could require additional documentation if needed.

Sharing KYC Data through a Central Database or Registry

• This approach would eliminate duplication in managing documents.
• All deal managers and relevant agents could access the database, while maintaining each bank’s liability for conducting customer due diligence.

KYC Passporting

• One investor could be identified only once by one dealer or deal manager.
• The identifying party would issue a “KYC passport” and retain legal and compliance responsibility.

Potential Barriers to Harmonization

• National data privacy laws restricting the sharing of customer data
• Differing risk assessments among market participants

Opportunities for Progress

• Linking KYC efforts to the discussion around LEI (Legal Entity Identifier) and investor ID.
• Highlighting existing fragmentation and recommending stronger legal harmonization.

Conclusion

The financial sector in Liechtenstein is actively engaged in discussions aimed at achieving harmonized KYC procedures, which could lead to:

• Increased efficiency
• Reduced costs
• Improved customer experience

The next steps involve verifying the direction of work with relevant authorities and conducting further fact-finding initiatives to gather insights from national requirements on required documents for investor identification and experiences from KYC third-party service providers.