Financial Crime World

Regulatory Framework for Banks in Liechtenstein

The Financial Market Authority (FMA) plays a crucial role in supervising banks in Liechtenstein. Here’s an overview of the key aspects of the regulatory framework:

Supervision

  • The Financial Market Authority (FMA) is responsible for overseeing banks in Liechtenstein.
  • The FMA operates independently and reports directly to the government.

Prudential Requirements

  • Banks must adhere to prudential standards, including:
    • Capital adequacy and liquidity requirements
    • Implementation of the Capital Requirements Directive (CRD) and Capital Requirements Regulation (CRR) through the Banking Ordinance (BA)
    • Establishment of sound risk management policies and procedures by the FMA

Remuneration

  • Banks must introduce remuneration policies aligned with their long-term interests.
  • Rules governing variable remuneration include:
    • Composition and retention
    • Treatment of voluntary retirement benefits
  • Small institutions and employees with low variable remuneration are exempt from these provisions.

Regulatory Capital and Liquidity

  • Liechtenstein banks have a robust capital base, with an average core capital (Tier 1 ratio) exceeding 20%.
  • Banks must maintain adequate liquidity buffers to meet their financial obligations.
  • The FMA ensures that banks comply with regulatory requirements.

Resolution Framework

  • The resolution framework aims to ensure the continuity of critical functions and protect public funds.
  • The resolution authority operates independently from other FMA units.
  • Key objectives include:
    • Ensuring the continuity of critical functions
    • Avoiding a significant adverse effect on the financial system
    • Protecting public funds by minimizing reliance on extraordinary public financial support
    • Protecting covered deposits and investments
    • Safeguarding client funds and client assets

Specific Fields of Business

  • Liechtenstein has a small market, with policies aiming to anticipate developments in the financial sector.
  • The Law on Token and Trustworthy Technology Service Providers regulates blockchain and distributed ledger technology products.
  • The European Commission’s draft Regulation on Markets in Crypto-Assets stipulates requirements for capital and asset safekeeping.

In summary, Liechtenstein’s regulatory framework for banks prioritizes prudential supervision, adequate risk management, and compliance with EU regulations.