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Liechtenstein’s Financial Sector: Strong Regulation and Stability

The Principality of Liechtenstein has been a bastion of financial stability in the wake of the global financial crisis. With a robust regulatory framework in place, the country’s banks have continued to thrive, boasting solid equity capital resources and high-quality assets.

Remuneration and Bonus System

In response to the financial crisis, Liechtenstein introduced stricter rules on remuneration and bonuses for banks and investment firms. According to Article 7a of the Banking Act, these institutions must establish and maintain remuneration policies that are consistent with sound risk management practices. The Financial Market Authority (FMA) shares this information with European supervision bodies.

Regulatory Capital and Liquidity

Liechtenstein’s banks have demonstrated exceptional financial strength, with an average core capital ratio of over 20 percent. This exceeds the requirements set by Basel III and the EU’s Capital Requirements Directive IV (CRD IV). The FMA has issued guidelines on own funds and capital adequacy requirements, ensuring that banks maintain sound strategies for maintaining internal capital.

Capital Buffers

In addition to robust core capital ratios, Liechtenstein’s banks are required to hold additional capital buffers. These buffers serve as a safeguard against potential losses and ensure the stability of the financial system.

Resolution Framework

To address the risk of bank failures, Liechtenstein has established a resolution framework, which allows for the swift and effective resolution of distressed institutions. The FMA is responsible for exercising its resolution powers, with the goal of protecting public funds, maintaining financial stability, and minimizing disruptions to critical functions.

Tokenized Finance

Liechtenstein has also taken steps to establish itself as a hub for tokenized finance. The country’s Law on Token and Trustworthy Technology Service Providers came into effect in 2020, regulating the registration and supervision of service providers in the trustworthy technology sector, including blockchain companies.

  • The law provides a framework for the establishment, storage, trading, and monitoring of blockchain and distributed ledger technology products.
  • Anyone wishing to participate in these markets must obtain a corresponding license from the FMA.

In related news, the European Commission has published a draft Regulation on Markets in Crypto-Assets, which sets out requirements for capital and asset safekeeping, as well as investor complaints procedures and other investor rights. Issuers of stablecoins will be subject to particularly strict requirements regarding equity capital, investor rights, and supervision.

Conclusion

Liechtenstein’s financial sector is poised to continue its strong performance, thanks to a robust regulatory framework and the country’s commitment to maintaining financial stability. As the global financial landscape continues to evolve, Liechtenstein is well-positioned to remain a key player in the world of finance.