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Regulatory Framework for Banks in Liechtenstein
Liechtenstein, a small country in Central Europe, has a regulatory framework governing banks that is shaped by its membership in the Swiss franc currency area and the European Economic Area (EEA). In this article, we will explore the key aspects of the regulatory framework, including access to Swiss financial infrastructure, the Vaduz Convention, main banking acts and laws, banking association guidelines, licences, and implementation of EU standards.
Access to Swiss Financial Infrastructure
Liechtenstein’s membership in the EEA creates challenges for access to service providers or infrastructures in third countries. Restrictions on using the Swiss infrastructure without an equivalence decision by the European Commission are tightening, which could lead to Liechtenstein financial intermediaries losing access.
Impact of Tightening Regulations
- Loss of access to Swiss financial infrastructure
- Potential consequences for Liechtenstein financial intermediaries
The Vaduz Convention
The Vaduz Convention is an add-on to the EEA Treaty that has helped solve some of the problems resulting from Switzerland’s non-membership in the EEA. It grants Liechtenstein a European passport for its financial market companies and products, similar to other EEA members.
Benefits of the Vaduz Convention
- European passport for financial market companies and products
- Simplified access to EU markets
Main Banking Acts and Laws
The following acts and laws govern banking activities in Liechtenstein:
- Banking Act (BA): regulates banking activities
- Banking Ordinance: provides detailed rules for banks
- Act on Financial Market Supervision: oversees financial market supervision
- Professional Due Diligence Act: requires due diligence for professional services
- Financial Market Stabilisation Institution Act: stabilizes the financial market
- Restructuring and Winding-up Act: regulates restructuring and winding up of banks
- Market Abuse Act: prevents market abuse
- Asset Management Act: regulates asset management
- Consumer Credit Act: regulates consumer credit
- Persons and Companies Act: governs persons and companies
Importance of Main Banking Acts and Laws
- Provide a solid regulatory framework for banking activities
- Ensure stability and transparency in the financial market
Banking Association Guidelines
The Liechtenstein Bankers Association has issued directives and guidelines to an increasing extent, which some believe could be seen as problematic if imposed as binding on member banks. This could be viewed as entering into competition with the regulator.
Impact of Banking Association Guidelines
- Potential competition with the regulator
- Uncertainty for member banks regarding compliance requirements
Licences
Many new EU rules have made it necessary for market participants to have special licences for payment services, e-money, and other aspects of financial market business. Banking licences are comprehensive, allowing banks to engage in various activities without additional licenses if they provide the necessary knowledge, employees, and organization.
Benefits of Licences
- Simplified access to EU markets
- Ability to engage in various activities with a single licence
Implementation of EU Standards
Liechtenstein has implemented rules and regulations according to EU standards, referencing guidelines from the European Banking Authority (EBA).
Importance of Implementation of EU Standards
- Ensures consistency with EU regulatory framework
- Enhances stability and transparency in the financial market