Financial Crime World

Here is the article in markdown format:

Liechtenstein’s Financial Sector: Strengthening Regulations and Stability

In a bid to strengthen its financial sector and ensure stability, Liechtenstein has implemented various regulations and guidelines to govern the activities of banks, investment firms, and other financial institutions. The country’s financial regulator, the Financial Market Authority (FMA), plays a crucial role in ensuring that these institutions operate safely and efficiently.

Remuneration and Bonus System

In response to the global financial crisis, Liechtenstein introduced regulations governing remuneration policies and practices for banks and investment firms. According to Article 7a of the Banking Act, these institutions must introduce and maintain policies that are consistent with sound and effective risk management. The FMA shares this information with European supervision bodies.

  • Most banks in Liechtenstein pay bonuses, with systems varying from bank to bank.
  • The FMA has determined that certain rules do not apply to small institutions or employees who receive relatively low variable remuneration.
  • CRD IV provides clear rules on the relationship between fixed salary and variable components.

Regulatory Capital and Liquidity

Liechtenstein’s banks are required to maintain adequate regulatory capital and liquidity to ensure their stability. According to Article 7a of the Banking Act, these institutions must have sufficient capital to absorb potential losses and maintain liquidity to meet short-term financial obligations.

  • The FMA requires banks to submit regular reports on their capital and liquidity positions.
  • This ensures that the regulator can monitor the health of the banking system and take prompt action if necessary.

Resolution Framework

In 2017, Liechtenstein introduced a resolution framework aimed at ensuring the stability of the financial sector in the event of a crisis. The framework provides for the resolution of failing banks without relying on public funds.

  • The resolution authority has been tasked with drawing up resolution plans and applying resolution tools, such as:
    • Sale of business tool
    • Bridge institution tool
    • Asset separation tool
    • Bail-in tool
  • The objective is to ensure the continuity of critical functions, avoid a significant adverse effect on the financial system, protect public funds, and safeguard client assets.

Blockchain and Distributed Ledger Technology

Liechtenstein has also introduced regulations governing blockchain and distributed ledger technology (DLT). The Law on Token and Trustworthy Technology Service Providers entered into force in 2020, requiring service providers to register with the FMA and comply with anti-money laundering and customer documentation requirements.

  • The country has also adopted an Amendment to the Due Diligence Ordinance, which regulates know-your-customer, anti-money laundering, and customer documentation requirements for DLT products.
  • Issuers of stablecoins are subject to particularly strict requirements regarding equity capital, investor rights, and supervision.

Conclusion

Liechtenstein’s financial sector is subject to a range of regulations and guidelines aimed at ensuring stability and protecting consumers. The country’s regulatory framework is designed to promote the development of innovative financial products and services while mitigating risks to the financial system.