Liechtenstein’s Financial Sector: A Model of Stability and Transparency
In recent years, Liechtenstein has taken significant steps to strengthen its financial sector by implementing regulations aimed at ensuring stability and transparency. The country’s financial authorities have put in place measures to guarantee that banks and investment firms operate in a sound and effective manner.
Remuneration and Bonus System
According to Article 7a of the Banking Act (BA), banks and investment firms must introduce and maintain remuneration policies and practices that are consistent with sound risk management. This rule was introduced in response to the global financial crisis, aiming to ensure that institutions’ remuneration policies align with their long-term interests.
- Liechtenstein’s banking sector has responded by implementing a range of remuneration systems, including those tied to specific goals and discretionary bonuses.
- The Financial Market Authority (FMA) has also established guidelines for small institutions and employees who receive low variable remuneration.
Regulatory Capital and Liquidity
Liechtenstein’s banks are known for their financial strength and stability, with an average core capital ratio of over 20%. This is significantly higher than the EU’s minimum requirement. The FMA has implemented strict regulations to ensure that institutions maintain sufficient regulatory capital and liquidity.
Resolution Objectives and Tools
In the event of a crisis, Liechtenstein’s resolution authority will work to ensure the continuity of critical functions, avoid significant adverse effects on the financial system, protect public funds, and safeguard client deposits and investments. The authority has four key tools at its disposal:
- Sale of business tool
- Bridge institution tool
- Asset separation tool
- Bail-in tool
Specific Fields of Business
Liechtenstein is a small market that relies heavily on international trade and investment. To remain competitive, the country has implemented specialized regulations in areas such as:
- Token and trustworthy technology service providers: The FMA is responsible for registering and supervising these service providers, which include blockchain and distributed ledger technology companies.
- Due Diligence Act: This act regulates know-your-customer, anti-money laundering, and customer documentation requirements. Issuers of stablecoins will be subject to strict requirements regarding equity capital, investor rights, and supervision.
Conclusion
Liechtenstein’s financial sector is a model of stability and transparency, with regulations aimed at ensuring the safety and soundness of institutions. The country’s banking sector has responded positively to regulatory changes, implementing remuneration systems that align with sound risk management practices. With its specialized regulations in areas such as blockchain and tokenized assets, Liechtenstein is well-positioned to remain a competitive player in the global financial market.