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LIECHTENSTEIN FINANCIAL SECTOR: A COMPREHENSIVE OVERVIEW OF BANK GOVERNANCE AND INTERNAL CONTROLS

In a bid to strengthen the financial sector, Liechtenstein has implemented comprehensive regulations governing bank governance and internal controls. The country’s banking system is subject to strict oversight by the Financial Market Authority (FMA), which ensures that banks operate in accordance with international standards.

Bank Governance: Key Requirements

Liechtenstein banks are required to have a robust governance structure, comprising a board of directors and a management board. The board of directors is responsible for the overall direction, supervision, and control of the bank, while the management board is accountable for the day-to-day operations.

Board of Directors: Responsibilities

The board of directors has non-transferable responsibilities, including:

  • Stipulating internal organization and issuing corporate governance regulations
  • Appointing and removing persons charged with managerial functions
  • Supervising managers’ compliance with laws and regulations
  • Compiling business reports and approving interim financial statements

Management Board: Responsibilities

The management board is responsible for the business operation, comprising at least two members with adequate experience and qualifications. Members of the management board may not simultaneously be members of the same bank’s board of directors.

Remuneration Policy

Liechtenstein banks are required to establish sound remuneration policies in line with the Capital Requirements Regulation (CRR) and the Bank Act (BankG). Banks of material significance must set up a remuneration committee composed of board members.

Internal Audit and Compliance

Banks must have an internal audit department reporting directly to the board of directors. Annual external audits are also mandatory, conducted by independent auditors acknowledged by the FMA. Additionally, banks must have a risk management system independent of operational business and dedicated compliance departments.

Place of Management

The effective place of management of a bank must be in Liechtenstein. The FMA requires members of the management board to work effectively from Liechtenstein, demonstrating sufficient substance in terms of office space and key personnel employed locally.

Conclusion

In conclusion, Liechtenstein’s banking sector is subject to robust governance and internal controls, ensuring stability and confidence in the financial system. While Commission Delegated Regulations (EU) 2016/2251 and (EU) 2017/323 have yet to be implemented, the country has already taken significant steps to strengthen its regulatory framework.

Key Takeaways

  • Liechtenstein banks are subject to strict governance and internal controls
  • Board of directors and management board have distinct responsibilities
  • Remuneration policies must align with international standards
  • Internal audit and compliance departments are mandatory
  • Effective place of management is required to be in Liechtenstein

For further information on Liechtenstein’s banking sector, please contact [insert contact details].