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Liechtenstein’s Financial Sector: Strong Regulation and Stability

The financial sector in Liechtenstein is renowned for its stability and strength, thanks to a robust regulatory framework that ensures the safety and soundness of banks and other financial institutions. In this article, we will delve into the key regulations and requirements that govern the financial sector in Liechtenstein.

Remuneration and Bonus System

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

  • Remuneration policies must be aligned with sound risk management
  • FMA ensures compliance and shares information with European supervision bodies

Capital Requirements

Liechtenstein banks are known for their strong capital base, with an average core capital ratio of over 20%. This is significantly higher than the required minimum under Basel III or EU capital requirements. The FMA has issued guidelines on own funds and capital adequacy requirements, ensuring that banks maintain a sound and comprehensive strategy for managing risk.

  • Average core capital ratio: over 20%
  • Capital base significantly higher than required minimum
  • FMA guidelines ensure banks maintain sound risk management strategy

Resolution Framework

In response to the global financial crisis, Liechtenstein introduced a resolution framework to ensure the stability of its financial sector. The Law on Resolution of Banks and Investment Firms aims to prevent or mitigate the effects of bank failures by enabling the resolution authority to take prompt action.

  • Resolution framework ensures financial sector stability
  • Law enables resolution authority to take prompt action in case of bank failure

Token and Trustworthy Technology Service Providers

Liechtenstein has taken a proactive approach to regulating the rapidly evolving blockchain and distributed ledger technology (DLT) sector. The Law on Token and Trustworthy Technology Service Providers, which came into effect in 2020, regulates the registration and supervision of new categories of service providers in this sector.

  • Proactive regulation of blockchain and DLT sector
  • Law regulates registration and supervision of new service providers

Conclusion

Liechtenstein’s financial sector is built on a foundation of strong regulation and stability. By ensuring that banks and other financial institutions comply with rigorous capital requirements and remuneration rules, the FMA has created an environment that is conducive to growth and innovation while minimizing the risk of systemic failure. As the financial landscape continues to evolve, Liechtenstein’s regulatory framework will remain a key factor in maintaining its reputation as a stable and attractive destination for financial services.

  • Strong regulation and stability enable financial sector growth and innovation
  • FMA ensures compliance with rigorous capital requirements and remuneration rules