Liechtenstein’s Cross-Border Private Banking Services: A Complex Web of Regulations
As banks and wealth management institutions increasingly operate globally, understanding the regulatory landscape of Liechtenstein is crucial to navigating cross-border private banking services. Our article delves into the complexities of liability, licensing requirements, and reporting obligations for financial institutions operating in this European microstate.
Liability May Also be Incurred
Financial institutions providing cross-border private banking services to clients in Liechtenstein must be aware that they may also be held liable for any damages or losses incurred by those clients. This is particularly important for institutions from third countries outside the European Economic Area (EEA), which must establish a local branch in order to actively approach clients in Liechtenstein.
Licensing Requirements
Banks and wealth management institutions from non-EEA countries providing banking services to clients in Liechtenstein on a cross-border basis require a banking licence. The only exception is reverse solicitation, where financial institutions may provide private banking services without establishing a local branch, but this option is limited.
Regulation
The provision of all cross-border wealth management, advisory, and banking services provided for by law to Liechtenstein clients is regulated. Financial intermediaries are not subject to tax reporting requirements to the Tax Authority in respect of their domestic and international clients, however, they may be obliged to report on grounds of anti-money laundering suspicion.
Key Considerations
- Employee travel: Employees of foreign private banking institutions may travel to meet clients and prospective clients in Liechtenstein if the licensing or notification requirements are complied with.
- Document exchange: Financial institutions may send documents to clients and prospective clients in Liechtenstein, subject to compliance with the relevant regulations.
Tax Disclosure and Reporting
Individual taxpayers in Liechtenstein are obliged to disclose domestic and foreign private banking accounts to the Tax Authority if they are subject to taxation in the country. Financial intermediaries may also be required to report on anti-money laundering suspicion.
Structuring Possibilities
Liechtenstein offers a range of structuring possibilities, including:
- Foundations
- Trusts
- Corporate vehicles
These structures can be attractive to clients from different jurisdictions. The benefits and risks of each structure depend strongly on the objectives pursued.
Know-Your-Customer Requirements
Financial institutions providing investment advice or portfolio management services must inquire into the specific objectives, risk appetite, and experience of their clients. Liechtenstein law also stipulates know-your-customer rules for consumer protection purposes.
Obstacles to Using Structures
- Formalities imposed by the legislator
- Personal liabilities or nullity
Other limits and obstacles depend on the specific situation and objective of the structure.
Contract Provisions
Private banking and wealth management contracts in Liechtenstein often contain:
- A choice of law clause, which can be varied by contract
- Liability standards provided for by law, which can also be varied by contract
However, there are limited restrictions on the validity of the choice of law clause for consumer protection reasons.
Conclusion
In conclusion, financial institutions operating in Liechtenstein must navigate a complex web of regulations and liabilities to provide cross-border private banking services. A thorough understanding of these requirements is crucial to avoiding potential risks and ensuring compliance with regulatory obligations.