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LIECHTENSTEIN REGULATORY FRAMEWORK FOR BANKS

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The Principality of Liechtenstein has a well-established regulatory framework for banks, with a strong emphasis on stability and investor protection. The national authorities responsible for banking regulation, supervision, and resolution are the Financial Market Authority (FMA) and the Office of the Attorney General.

Banking License Requirements

To operate as a bank in Liechtenstein, an institution must obtain a banking license from the FMA. This requires meeting specific capital requirements, demonstrating a sound business plan, and adhering to strict prudential regulations. The license is granted for a minimum period of five years.

Types of Licenses and Activities

The FMA issues different types of licenses for various banking services, including:

  • Commercial banking
  • Investment banking
  • Asset management

A banking license automatically permits certain other activities, such as the issuance of electronic money and payment services, subject to specific conditions.

Cryptocurrency Regulation

Liechtenstein has implemented a comprehensive regulatory framework for cryptocurrencies, which are considered financial market instruments. Crypto assets do not qualify as deposits, and their storage is subject to strict requirements. The FMA requires banks to hold specific capital reserves for crypto-related risks.

Application Process and Timing

The application process for a banking license typically takes around 6-12 months. Applicants must submit a comprehensive business plan, demonstrate sufficient capital, and meet the regulatory requirements. Mere cross-border activity is permissible if the institution has a representative office or branch in Liechtenstein.

Organizational Requirements and Governance

Banks operating in Liechtenstein are subject to strict organizational requirements, including corporate governance standards and risk management procedures. The FMA oversees compliance with these regulations.

Remuneration Policies

The FMA has implemented rules on remuneration policies for bank employees, aiming to ensure that compensation practices align with the bank’s long-term interests.

Basel III Framework and Capital Requirements

Liechtenstein has adopted the Basel III framework for regulatory capital requirements. The leverage ratio and liquidity requirements are also in place, including the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR).

Financial Statement Reporting and Consolidated Supervision

Banks operating in Liechtenstein must publish their financial statements, with interim reporting required on a quarterly basis. Consolidated supervision is applied to banks with significant cross-border activities.

Acquisition of Shareholdings and Control

The FMA requires approval for the acquisition of shareholdings in or control of banks, subject to specific conditions and restrictions on foreign shareholdings.

Sanctions and Resolution Regime

The regulator can impose sanctions for non-compliance with banking regulations. The resolution regime for banks is designed to protect depositors’ interests and maintain financial stability.

Protection of Client Assets and Cash Deposits

Client assets and cash deposits are protected through the Liechtenstein Deposit Protection Fund, which covers up to 100% of eligible deposits.

Bail-in Tool and Gone Concern Capital

The bail-in tool is available in cases of bank insolvency. The regime requires banks to hold gone concern capital (TLAC) to ensure their stability and resilience.

Liechtenstein’s financial sector faces ongoing challenges, including the impact of technological advancements, regulatory requirements, and global economic trends.