Financial Crime World

Liechtenstein’s Financial Market Authority Issues Directive on ICAAP

The Liechtenstein Financial Market Authority (FMA) has issued a special directive outlining key requirements for Internal Capital Adequacy Assessment Processes (ICAAP) in the country. The directive aims to ensure the stability of the financial system and provide clarity on regulatory expectations.

Key Points from the Directive

Capital Buffers

  • A-SRIs (Systemically Relevant Institutions) may be assigned an additional capital buffer of up to 2% of their total risk amount, as per Article 92 of CRR.
  • This provision aims to ensure that systemically relevant institutions have sufficient capital to absorb potential losses and maintain stability in the financial system.

Recovery and Resolution

  • The Recovery and Resolution Act (RRA) transposes the European Recovery and Resolution Directive (BRRD), establishing a framework for resolving too-big-to-fail institutions.
  • The FMA is appointed as Liechtenstein’s resolution authority, with a separate organisational unit to exercise its functions independently.

Resolution Objectives

The resolution authority aims to ensure:

  • Continuity of critical functions
  • Avoidance of significant adverse effects on the financial system
  • Protection of public funds and minimization of extraordinary support
  • Protection of covered deposits, investments, client funds, and client assets

Tools for Resolution

The FMA has four tools at its disposal:

  • Sale of business tool
  • Bridge institution tool
  • Asset separation tool
  • Bail-in tool

These tools will be used to resolve systemically relevant institutions in a manner that minimizes disruption to the financial system.

Regulations for Trustworthy Technology Service Providers

Liechtenstein has introduced regulations for trustworthy technology service providers, including:

  • Blockchain and distributed ledger technology products
  • Service providers must obtain a license from the FMA to operate in these markets

International Cooperation

The European Commission has published a draft Regulation on Markets in Crypto-Assets, which sets requirements for:

  • Capital
  • Asset safekeeping
  • Investor rights

This regulation aims to provide a framework for the development of the crypto-assets market and ensure investor protection.

Conclusion

The FMA’s directive emphasizes the importance of internal capital adequacy assessment processes (ICAAP) and recovery planning to ensure the stability of the financial system. The directive provides clarity on regulatory expectations and requirements for systemically relevant institutions, trustworthy technology service providers, and the resolution process.